BREEDON GROUP Annual Report 2019 MAKING A MATERIAL DIFFERENCE

BREEDON GROUP ANNUAL REPORT 2019 www.breedongroup.com IN THIS REPORT

From our quarries and STRATEGIC REPORT plants come the essential 2019 highlights 02 construction materials that Our strategy 04 Our business at a glance 06 build our homes, workplaces Statement from the Chair 08 and leisure spaces. Group Chief Executive’s review 12 Our business model 16 From roads to airport runways, Our markets 18 Our strategy: progress and priorities 20 from houses to warehouses, Our Key Performance Indicators 22 shops to offices, walkways, Managing our risks and opportunities 24 Group Finance Director’s review 28 cycle paths, tennis courts and Business reviews 33 golf courses, you’ll find our Resources and relationships 44 products transforming the lives Health and safety 46 Climate change and energy 48 of people at work and at play in Social responsibility 50 cities, towns and villages across Environment and nature 52 Circular economy 53 Great Britain and Ireland. Our stakeholders 54

From the ground up, we are GOVERNANCE Board of Directors 58 MAKING A Corporate Governance statement 60 Audit Committee report 66 Directors’ Remuneration report 69 MATERIAL Nomination Committee report 77 Directors’ Report 79 DIFFERENCE Statement of Directors’ Responsibilities 82

FINANCIAL STATEMENTS Independent Auditor’s report 84 Consolidated Income Statement 90 Consolidated Statement of 91 Comprehensive Income Consolidated Statement of Financial Position 92 Consolidated Statement of Changes in Equity 93 Consolidated Statement of Cash Flows 94 Notes to the Financial Statements 95

ADDITIONAL INFORMATION Shareholder information 135 Advisers and company information 138 Glossary 139

Please read this report in conjunction with the FOR MORE INFORMATION glossary on pages 139 and 140.

Front cover: Restoration work underway at our former Black Cat quarry in Bedfordshire, where we largely completed mineral extraction in 2019 www.breedongroup.com ABOUT US STRATEGIC REPORT STRATEGIC

WHO WE ARE A leading vertically-integrated construction materials group in Great Britain and Ireland. Our core outputs are aggregates and cement, from which we produce a range of value-added products including asphalt, ready-mixed concrete and mortar, together with the delivery of specialist contracting services including highway surfacing and maintenance.

OUR STRATEGY We are an ambitious company in our tenth year of consistent growth. As we look ahead, we have set out in this report a clear guide to our medium-term objectives and strategy. We aim to be a leading international construction materials group creating superior value for all our stakeholders. We have detailed the six pillars of our strategy on pages 4 and 5.

Whitemountain’s Temple Quarry near Belfast

BREEDONGROUP.COM 01 STRATEGIC REPORT 2019 HIGHLIGHTS

REVENUE UNDERLYING EBIT* £929.6m £116.6m 2018: £862.7m +8% 2018: £103.5m +13%

UNDERLYING EBIT MARGIN* PROFIT BEFORE TAX 12.5% £94.6m 2018: 12.0% +0.5ppt 2018: £79.9m +18%

UNDERLYING BASIC EARNINGS PER SHARE* BASIC EARNINGS PER SHARE 5.08p 4.64p 2018: 4.70p +8% 2018: 4.01p +16%

NET DEBT

* Underlying results are stated before acquisition-related expenses, redundancy * Underlyingand reorganisation results are costs, stated property before items, acquisition-related amortisation ofexpenses, acquisition redundancy andintangibles reorganisation and related costs, tax property items. items, amortisation of acquisition intangiblesReferences and to an related underlying tax items. profit References measure throughout to an underlying this Annual profit Report measure are £290.3m throughoutdefined on this Annualbasis, and Report a reconciliation are defined to onthe this most basis. directly related statutory 2018: £310.7m measure is provided on pages 132 to 134.

Read about our progress against the six pillars of our strategy on pages 4 and 5.

02 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

We delivered a strong result, reflecting an excellent performance in challenging conditions

All three of our Divisions produced improved results

Strong cash flow resulted in closing post IFRS 16 Above: James Quinn, skipper of Whitemountain’s sand dredger on Leverage of 1.6 Lough Neagh in Northern Ireland

We largely completed the integration of Lagan

The acquisition of Roadway strengthened our position in North Wales

Our Capital Concrete joint venture gave us critical mass in the London Above: Rita Simpson, who keeps the pre-heater tower at our Hope readymix market cement works flowing

We negotiated the acquisition of a substantial portfolio of assets from CEMEX in the UK

We committed to the GCCA’s Sustainability Charter

We intend to declare a maiden dividend with our

2021 interims Above: Paddy O’Shea, Control Room Operator, Cloud Hill quarry

BREEDONGROUP.COM 03 STRATEGIC REPORT OUR STRATEGY

There are six pillars to our strategy, which together constitute the essential elements of Breedon’s investment case. 1. From this year we will report on A CLEAR PURPOSE AND THE RIGHT CULTURE our progress against these pillars.

6. 2. A GROWING, ROBUST WELL-UTILISED GOVERNANCE ASSET BASE OUR SIX PILLARS

5. 3. CONSERVATIVE COMMITMENT TO FINANCIAL SUSTAINABILITY MANAGEMENT AND SOCIAL RESPONSIBILITY

4. LONG-TERM GROWTH MARKETS

1. 2. A CLEAR PURPOSE AND ROBUST THE RIGHT CULTURE GOVERNANCE Our purpose is simple: to make a material We are already compliant with the Quoted difference to the lives of our colleagues, our Companies Alliance (QCA) Corporate customers and our communities, recognising Governance Code, having a strategy and that our products are essential to our economic business model which promotes long-term livelihood and to the development of healthy shareholder value and meets our shareholders’ living and working spaces for everyone. needs and expectations, supported by effective We acknowledge that no company can achieve risk management and broad stakeholder its purpose without the right culture, rooted in engagement activity. strong ethical values and behaviours, and a safe We have been steadily developing our Board working environment. Over the past year we have to ensure that it is well balanced, with the right engaged in a wide-ranging consultation with our mix of skills and experience, evaluated against colleagues in an effort to define and give clear clear and relevant objectives, with governance expression to that culture. It can be summarised structures that are fit for purpose and support in the four values which will guide us in everything sound decision-making. we do over the coming years: We have always sought to adhere to the • Keep it simple highest standards of corporate best practice, which in due course will naturally support a • Make it happen likely transition from the Alternative Investment • Strive to improve Market (AIM) to a full listing on the London Stock Exchange, at which point we will be • Show we care governed by the Financial Reporting Council’s Our priority is to ensure that these values (FRC) UK Corporate Governance Code, with become deeply embedded in our business, which we are already substantially compliant. that they are reflected in the working environment we provide for our colleagues and that they drive the right leadership behaviours in our management team.

04 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

3. 4. COMMITMENT TO LONG-TERM SUSTAINABILITY AND SOCIAL GROWTH MARKETS RESPONSIBILITY We will continue to focus on construction As an extractive industry we have an obligation materials markets that deliver profitable growth to ensure that our impact on the environment across the cycle. and society are minimised. Being a good We see numerous opportunities to expand corporate citizen is essential to protecting both our geographical footprint and our our licence to operate and is central to our product portfolio through organic investment purpose: to make a material difference to the and acquisitions. communities we serve. As we look over time to international markets From 2019 we have fully embraced our wider beyond Great Britain (GB) and Ireland, stakeholder and social responsibilities by we will focus only on those countries which targeting full compliance with the five pillars are characterised by robust legal systems, of the Global Cement and Concrete reliable planning regimes and benign local Association’s (GCCA) Sustainability Charter: cultures with minimal political risk. • Health and safety • Climate change and energy • Social responsibility • Environment and nature • Circular economy

5. 6. CONSERVATIVE FINANCIAL A GROWING, WELL-UTILISED MANAGEMENT ASSET BASE Breedon has always sought to balance growth The resources we use to produce our products and profitability. We prioritise the maintenance are scarce and valuable, so it is vital that we of a strong balance sheet with a responsible maintain a high level of mineral reserves and approach to Leverage and deploy our capital maximise the value of every tonne of material responsibly, allowing us to commit significant we quarry or manufacture. We achieve this organic investment to our business whilst through a disciplined approach to quarry continuing to pursue acquisitions to accelerate acquisition and development, coupled with a our strategic development. deep-rooted culture of self-help that ensures This conservative approach to financial our operations remain efficient and competitive management will enable us to continue irrespective of market conditions. pursuing capital growth for our shareholders, At the end of 2019 we had nearly 900 million whilst supporting our future dividend policy. tonnes of mineral reserves and resources, enough to last 38 years at current rates of extraction, coupled with two cement plants with high replacement values. Looking to the future, we aim to increase our asset base in all the markets in which we operate and ensure that we continue extracting value as efficiently as possible and with due regard to our responsibilities as stewards of the land on which we operate.

BREEDONGROUP.COM 05 STRATEGIC REPORT OUR BUSINESS AT A GLANCE

We are a leading vertically-integrated GREAT BRITAIN construction materials group in In GB we operate a nationwide network of quarries GB and Ireland. and downstream operations extending from Stornoway in the Hebrides to Hampshire in the south of England. Our contracting services business undertakes contract surfacing for both minor and major infrastructure projects.

PRODUCT VOLUMES 2019 REVENUE AGGREGATES ASPHALT million tonnes million tonnes 3.0 £615.1m 2.8 9.4 20.2 . .6 2.6 0.9 UNDERLYING EBIT

50%* of Group 7.8 7.6 .9 .9 £62.8m 20 8 209 208 209 +4% +6% Key Assets CONCRETE CEMENT • Substantial permitted mineral reserves and resources million m3 million tonnes • Extensive network of quarries, rail-linked aggregates 3.2 3.0 depots, asphalt plants, ready-mixed concrete plants 0. 2.0 2.0 and concrete products manufacturing facilities 0.2 throughout England, Scotland and Wales • Nationwide fleet of delivery vehicles for all products • Sizeable contracting services operations

3. 2.8 208 209 208 209 -7% +3% Strategic Advantages • Strong reserve base Great Britain Ireland Cement • Fully vertically-integrated operations, yielding

Volume data in the above charts have been rounded to the nearest 0.1 million. economies of scale Reported percentage movements are calculated based on non-rounded data. • Highly localised service with diverse range of customers • Well positioned to secure acquisitions in fragmented market

* Excludes central administration and share of profit of associate and joint ventures. Further segmental information is provided in note 2 to the Financial Statements on page 103.

06 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC IRELAND CEMENT Breedon trades under the Whitemountain brand in Breedon’s Cement Division operates two cement Northern Ireland (NI) and as Lagan in the Republic plants, in GB and Ireland, including the UK’s largest of Ireland (RoI). We operate a nationwide network cement plant by capacity, together with four import/ of quarries and downstream operations alongside export terminals and a rail-linked distribution network. a significant contracting services business which undertakes contract surfacing as well as major infrastructure and highway maintenance contracts throughout Ireland.

REVENUE REVENUE £202.0m £186.4m

UNDERLYING EBIT UNDERLYING EBIT

2%* 29%* £26.8m of Group £36.3m of Group

Key Assets Key Assets • Highly regarded contract surfacing and highway • Two well-invested cement plants, including the maintenance business operating across RoI and GB UK’s largest plant by capacity, together capable of • Bitumen importation and distribution business, producing more than two million tonnes of cement including production of bitumen emulsions and each year polymer modified bitumen and binders • Import and export capability through three terminals • Growing network of quarries, asphalt plants, in GB and another in Ireland ready-mixed concrete plants and concrete and • Rail-linked distribution network in GB, servicing four clay products manufacturing facilities throughout regional cement depots with more than a million NI and RoI tonnes of throughput capacity • Port terminal for export of high-margin high PSV • Major cement bagging plant at Dagenham just aggregates to GB outside London

Strategic Advantages Strategic Advantages • Established position in RoI market with strong • Flexibility of supply due to production capability growth prospects in GB and Ireland, coupled with cementitious • Excellent contract surfacing track record, including import capacity specialist expertise in airport runway surfacing • Bulk supply complemented by higher-margin • Enhanced platform for further organic growth bagged products distributed to builders merchants and bolt-on acquisition opportunities in market in GB and Ireland fragmented markets • Reduced distribution costs due to rail links from our Hope Works to regional depots

BREEDONGROUP.COM 07 STRATEGIC REPORT STATEMENT FROM THE CHAIR

The challenging environment only served to intensify our efforts to improve our business.”

Amit Bhatia Non-executive Chairman

08 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC This is my inaugural report to shareholders This gave a much-needed boost to our colleagues as Chairman of Breedon and I would like to and provided a deserved reward for our investors. Unforeseen global events outside our control may have start by acknowledging the strong legacy left an adverse effect on the economy, but we will remain by my predecessor, Peter Tom, and thanking steadfast in our efforts to operate our businesses as him for his distinguished service over the efficiently and profitably as possible. From the first past 10 years. That said, Pat Ward and his day that your company was admitted to trading on AIM in 2008, we have been fortunate to have had excellent team have made my transition both supportive shareholders who joined us because they smooth and enjoyable. wished to make a long-term investment in a business 2019 was one of the most challenging years that would do well and do good. We have benefited we have faced so far. As a result of the uncertainties enormously from your support. surrounding the United Kingdom’s (UK) withdrawal Sustainability from the European Union (EU), we spent much of the We understand that as one of the leading businesses year swimming against the tide. UK business in the UK and Ireland, operating in an environmentally investment is estimated to have fallen by 1.4 per cent, sensitive industry, Breedon’s obligations go well construction markets were broadly flat and beyond delivering a strong financial performance. competition was tough. This difficult backdrop, Our responsibility is to all our stakeholders and this however, only served to intensify our team’s efforts to is reflected in our newly-defined purpose: to make a improve our business. To deliver a 13 per cent increase material difference to the lives of our customers, our in Underlying earnings before interest and tax (“EBIT”) colleagues and our communities. Making this purpose on eight per cent higher revenues under these a reality is vital to maintaining our licence to operate, conditions is testament to the skill and resourcefulness to the successful execution of our strategy and to of management and the dedication and commitment ensuring that we are the best corporate citizen we of our 3,000 colleagues. can be. Able managers of high character running businesses Climate change and sustainability are defining factors about which they are passionate are good ingredients in determining a company’s long-term prospects. for success. We are fortunate to have these qualities in We understand the role we play and recognise that abundance throughout Breedon. we must place these issues at the heart of our business Acquisitions and strengthen our commitment to transparency, so In October we were pleased to complete the that our shareholders have a clear picture of how we acquisition of Roadway Civil Engineering & Surfacing manage these important issues. A company cannot Ltd (“Roadway”) and in December we formed a achieve long-term success without having a strong strategically important joint venture in London with sense of purpose and a determined consideration of a Robert Brett & Sons Limited (“Brett”), trading as broad range of stakeholders. Ultimately, purpose is the Capital Concrete Limited (“Capital Concrete”). engine of long-term profitability. It is the duty of your We followed this up immediately after the year-end Board to implement frameworks for managing with an agreement to acquire a portfolio of high- sustainability issues and to produce effective quality assets from CEMEX UK Operations Limited disclosures associated with them. (“CEMEX”) in the UK, which will substantially You can gauge the measure of our commitment on strengthen our GB network and our platform for pages 45 to 53, where you will see that we have further growth. Our pipeline remains robust and we adopted the GCCA Sustainability Charter, obligating remain keen to transact with companies that add to us to set and achieve demanding targets on health Breedon’s strategic goals and share our values. and safety; climate change and energy; social You can read more about our performance and the responsibility; environment and nature; and the background to these acquisitions in your Group Chief circular economy. The Board will be uncompromising Executive’s review on pages 12 to 15. in its requirement for continuous improvement in all these areas in the years ahead. Shareholder value Purpose and values Good performance, of course, is of limited value unless investors enjoy the benefits and there is no It is of course the case that genuinely improving the doubt that the performance of our share price during lives of our stakeholders can only happen if we have a the year was largely disappointing, driven partly by culture rooted in strong ethical values and behaviours. a weak macroeconomic environment and partly by a In 2019 we embarked on a wide-ranging internal significant churn in our shareholder register unrelated consultation, including a Group-wide engagement to the performance of the business. Throughout this survey, in an effort to define and articulate our period, we have remained focused on preserving and culture more clearly. The values we identified will be enhancing Breedon’s intrinsic value, so that as embedded in the business and provide the benchmark conditions improve, so does our company’s value. against which we will measure our success in engaging with and changing the lives of our stakeholders, both It was pleasing to note the rise in the share price inside and outside the company, in the coming years. towards the end of the year, signifying that the hard work of the past few years was being recognised.

BREEDONGROUP.COM 09 STRATEGIC REPORT STATEMENT FROM THE CHAIR CONTINUED

Governance Strategy You should rightly expect strong governance to be As we look back on our successes over the last at the heart of our culture. In this regard, you will 10 years, it is appropriate that we should have taken have seen that during 2019 the Board was further stock of our strategy to ensure that we are match-fit strengthened with the appointments of experienced for the coming years. non-executive directors Clive Watson and Moni Over the long term we aspire to be a leading vertically- Mannings, who this year assume respectively integrated international construction materials group the chairs of our Audit Committee and delivering superior value for all our stakeholders. Remuneration Committee. Please take a moment to read pages 4 and 5, where I am also delighted to announce that in spring 2020 we explain how we will achieve this by maintaining a we will welcome Carol Hui to the Board as an clear purpose and culture, with robust governance, independent non-executive director. Carol is Chief of a commitment to sustainability and social Staff and General Counsel at Heathrow Airport responsibility, operating in long-term growth markets, Holdings Limited and has previously served in senior with conservative financial management and a growing positions in oil and gas, logistics and infrastructure and well-utilised asset base. companies. She was also a corporate finance lawyer at Slaughter and May. She is currently Chairwoman of The future Robert Walters Plc and a non-executive director of the Looking ahead, I remain enthusiastic about the future. British Tourist Authority. Breedon has an exceptional team of people who have On behalf of the Board, I would like to record my consistently delivered exceptional results. I am appreciation to David Williams, who retired from the confident that we are well equipped to tackle any Board at the end of last year, and to Susie Farnon and challenge with which we are presented and ready to Peter Cornell, who will retire prior to the 2020 Annual take full advantage of the many opportunities which General Meeting (“AGM”). David and Susie have served lie ahead. on the Board for a decade or more and I thank them for their dedicated and loyal service. Dividend One of the most common questions I have been asked since becoming Chairman is when Breedon will begin paying a dividend. I am delighted to be able to confirm that we intend to adopt a progressive distribution policy from next year, commencing with a maiden Amit Bhatia dividend to be declared with our 2021 interim results. Non-executive Chairman 11 March 2020

10 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

Norton Bottoms quarry in Lincolnshire

BREEDONGROUP.COM 11 STRATEGIC REPORT GROUP CHIEF EXECUTIVE’S REVIEW

We closed 2019 with a strong result.”

Pat Ward Group Chief Executive

12 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC We closed 2019 with a strong result, in line ORGANIC DEVELOPMENT with the market’s expectations, reflecting an We have consistently deployed capital expenditure excellent performance from our businesses at least to the level of depreciation, believing that well-invested plant and equipment is vital to the in some challenging market conditions. efficient long-term performance of our quarries, On behalf of the Board and Executive plants and contracting services operations. 2019 was Committee, I would like to begin my review no exception, with around £60 million directed to with a sincere thank you to all our colleagues operational enhancements, increased capacity, geographical expansion and further development for their tireless efforts. of our mineral reserves and resources. MARKET BACKGROUND Among the landmark projects undertaken during the year was a major replant at our North Cave quarry in The UK construction industry endured one of its Yorkshire, together with new wash plants in our sand toughest periods for many years, with output in GB and gravel quarry at Low Plains in Cumbria and in our remaining stubbornly flat amid declines in activity in temporary pit at Loak Farm in Perthshire. The latter the public non-housing, industrial, commercial and will equip us to service upcoming demand from the repair, maintenance and improvement sectors. second phase of the A9 Dualling scheme, for which we Growth was once again largely accounted for by won a major supply and lay surfacing contract during infrastructure and housing, which worked to our the year. We also completed the replacement of the advantage given that these represent the majority raw mill drive and kiln shell at our Hope cement works. of our end-use markets, although as always there were significant regional variations. Once again we worked hard to create and release new sources of minerals, including the development of a In RoI, the picture was very different. Total output new sand and gravel quarry at Willington near Bedford is estimated to have risen by around eight per cent, and substantial additional aggregates reserves supported by exceptional growth in new residential released at Norton Bottoms quarry in Lincolnshire. construction activity. In RoI we opened a sixth quarry, at Castlepollard in A more detailed assessment of our markets can be County Westmeath. We will continue selectively to found on pages 18 and 19. reopen our remaining mothballed quarries in RoI as market demand dictates. TRADING PERFORMANCE Revenues rose by eight per cent to £929.6 million, ACQUISITIONS generating a 13 per cent increase in Underlying EBIT The acquisition of Roadway for £13.5 million in to £116.6 million, equivalent to an Underlying EBIT October represented an important step in establishing margin of 12.5 per cent. Profit before tax rose Breedon as a fully integrated business in North Wales. 18 per cent to £94.6 million. Strong cash generation It enables us for the first time to offer a comprehensive remains one of Breedon’s distinctive characteristics asphalt supply and lay service throughout North and once again we delivered an excellent result. Wales, Shropshire, Cheshire and Merseyside and Starting this year, we will be disclosing our Free Cash provides an additional route to market for aggregates Flow (“FCF”) annually as a Key Performance Indicator from our quarries in the region. (“KPI”), together with our Return on Invested Capital In December we realised our longstanding strategic (“ROIC”), which we believe investors regard as ambition to secure critical mass in the London important additional measures of our performance. ready-mixed concrete market through the creation of All three of our Divisions (Great Britain, Ireland and a joint venture with Brett. The company, which trades Cement) produced improved results, albeit with across Greater London as Capital Concrete, is jointly inevitable regional variations depending on their owned by Breedon and Brett, together with the respective market conditions, achieved against the company’s senior management, and provides both backdrop of improved selling prices and assisted by partners with a strong platform from which to develop a generally more benign input cost environment. our offerings to the largest construction materials A detailed review of our Divisional performances is market in the UK. contained in the Business reviews on pages 33 to 43. Shortly after the year-end, in January 2020, we agreed Thanks to our strong cash flow, post IFRS 16 net debt to acquire a substantial portfolio of high-quality assets at the end of the year stood at £290.3 million, from CEMEX in the UK. This £178 million acquisition is equivalent to 1.6 times Underlying EBITDA (earnings due to complete in the second quarter of this year and before interest, tax, depreciation and amortisation and will significantly extend the Group’s national network before our share of profit from our associate and via a single transaction, strengthening our footprint in joint ventures). six key regions of GB, bringing us around 650 new high-quality, well trained colleagues, and adding nearly 170 million tonnes of mineral reserves and resources.

BREEDONGROUP.COM 13 STRATEGIC REPORT GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED

The purchase is fully consistent with our strategy OUTLOOK of acquiring earnings-enhancing aggregates-led Breedon is in excellent shape. We have a well- businesses with strong potential for performance established business extending throughout GB improvements and synergy benefits. It is also one of a and Ireland, having delivered great results irrespective number of significant transactions we have concluded of market conditions. We have an outstanding team with our major peers over the last few years, of colleagues and, following the acquisition of the confirming our ability to benefit from non-core CEMEX asset portfolio, we will have the backing of divestments by our larger competitors. more than a billion tonnes of valuable mineral reserves The TUPE consultation process is well underway, and resources, together with two well-invested IT migration planning is on track and we are engaged cement plants. in constructive discussions with the Competition After 10 years of successful and profitable growth, and Markets Authority in relation to its review of we have a clear strategy for the coming years, built the transaction. on a clear market philosophy, strong governance, a healthy culture and a firm commitment to playing SAFETY our part in alleviating the impact of climate change I am pleased to report that we made very encouraging and delivering a sustainable future. progress in reducing the frequency of lost-time injuries With the UK Government committed to significantly last year. As a result, we saw our key historical safety increased investment in infrastructure, we are well metric, our Employee Lost-Time Injury Frequency Rate placed to benefit from the increased demand for our (LTIFR) fall to 1.05, only marginally above our target products that this will create. for the year. The Group is monitoring the potential impact of the This year we are also reporting our Total Injury COVID-19 virus and has contingency plans in place Frequency Rate (TIFR), which takes account of all which will be refined as the Government releases injuries, however minor. This fell to 17.17 from 20.54 more information. in 2018. I am confident that we will make further progress Although these are encouraging outcomes and in 2020 and beyond. compare favourably with our industry peers, we are not complacent – there are still too many minor injuries occurring in our business and we will not be satisfied until we are sending all our colleagues home in the same condition they arrived at work. In 2019 we appointed our first Group Head of Health, Safety & Environment, who brings with him a wealth of Pat Ward experience from within our industry and has assumed Group Chief Executive overall responsibility for the health and safety of our 11 March 2020 3,000 colleagues, as well as overseeing our environmental activities. We look forward to him taking our safety engagement to new levels.

COLLEAGUE ENGAGEMENT As the Chairman reports in his statement, last year we undertook our first Group-wide engagement survey, as part of an extensive consultation on the Group’s purpose and values. We have always believed that the quality and dedication of our people are among the primary reasons for Breedon’s competitive advantage, but we believed it was important for us to delve more deeply into our colleagues’ perceptions of the company they work for, acknowledging what we do well and not so well, in order to articulate our values more clearly and embed them in the business. At the end of January 2020 we launched our new purpose and values to our top 100 managers, who enthusiastically embraced them and began to roll them out to their respective teams in the weeks that followed. We go into more detail on this exercise on page 51.

14 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC GROUP CHIEF EXECUTIVE Q&A 2019

Group Chief Executive answers some key questions on Breedon’s performance in 2019 and on the future of the Group.

WHAT DO YOU THINK WERE BREEDON’S WHERE WILL YOU LOOK NEXT FOR Q Q GREATEST ACHIEVEMENTS IN 2019? ACQUISITION OPPORTUNITIES? I would highlight two things. Firstly, I was There is plenty still to go for in GB and Ireland, A particularly pleased that we succeeded in A where our markets remain fragmented and offer bringing down our LTIFR to close in line with our plentiful opportunities for bolt-on acquisitions. target for 2019. This is evidence that the safety Even after we have completed the acquisition culture we have been working so hard to embed of CEMEX’s assets this year, there will still be in our business is really taking root and that regions of GB where we remain under- keeping each other safe is becoming second- represented and in Ireland we have a well- nature to us all. Secondly, I would point to the defined pipeline of opportunities. As we have excellent operational performance delivered by indicated in the strategic overview on pages our team, who overcame very challenging 4 and 5 of this report, we are ambitious and aim market conditions to deliver an outstanding in the years ahead to be a leading international result, whilst largely completing the integration construction materials group, provided our of our largest acquisition to date. expansion criteria are met.

WHY WAS IT SO IMPORTANT TO DEFINE WHAT ARE BREEDON’S STRATEGIC Q Q BREEDON’S PURPOSE AND VALUES? PRIORITIES FOR THE YEAR AHEAD? Breedon has grown large and grown quickly, Our first priority, of course, is to deliver on our A in part via the acquisition of 16 businesses over A expectations from the core business. At the the past 10 years. Each of those businesses had same time, we will complete the acquisition of its own distinctive culture and legacy and it has CEMEX’s assets in the UK and progress planning become increasingly important that we bind for their integration into the Group. We will also ourselves together through a shared purpose continue to seek out bolt-on acquisition and common values that clearly distinguish us opportunities, whilst maintaining high levels of from our competitors. We want to ensure that organic investment in our operations. With the we all understand what it means to be a political environment more stable and the ‘Breedon person’, making a material difference prospect of major infrastructure spending to to our customers, communities and each other. come, we are exceptionally well placed to benefit from improving markets in GB and the continuing growth in construction activity in RoI.

BREEDONGROUP.COM 15 STRATEGIC REPORT OUR BUSINESS MODEL

We have a vertically-integrated business model which gives us significant economies of scale, a high level of self-sufficiency and tight control over our costs. The objective of our business model is to extract maximum value from every tonne of aggregates we quarry and every tonne of cement we produce, through the efficient manufacture and sale of a wide range of downstream products and associated services.

CORE CORE ASSETS OUTPUTS

nearly 900mt Aggregates reserves and resources

2 Cement cement plants

We seek continually to extend our mineral reserves Whether we are extracting and processing aggregates, organically and by acquisition, aiming to replenish as or producing cement, we focus on doing it as much as possible of what we use and ensure that we efficiently and cost-effectively as possible. always have a ready supply of raw material for our The logistics of manufacturing and distributing cement downstream operations. and extracting, processing and transporting Our business depends upon securing planning aggregates are complex and require great technical consents for new reserves and extensions, which are proficiency. We rely on well-invested plant and smart granted sparingly. To achieve this, we maintain good utilisation, coupled with rigorous quality and relationships with local authorities, landowners and environmental controls, to ensure that every tonne of communities, and identify suitable opportunities to material we produce is fit for purpose, whether its acquire new quarries and reserves where possible and destiny is as a raw material for asphalt, ready-mixed to expand our cementitious business. concrete, blocks, or a host of other applications.

THE LONG-TERM SUCCESS OF OUR BUSINESS MODEL IS SUPPORTED BY OUR KEY RESOURCES • HEALTH AND AND RELATIONSHIPS: SAFETY Read about our Resources and Relationships on pages 44 to 53. • CLIMATE CHANGE AND ENERGY

16 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

RECYCLE

ADDED VALUE LONG-TERM PRODUCTS AND SERVICES GROWTH MARKETS

Asphalt Infrastructure Ready-mixed concrete Housing Contracting services Commercial Other products Other

The essence of our business model is to maximise Our markets are characterised by steady growth over the return on every tonne of material we produce, the cycle and the prospects both in GB and Ireland in whether it is rock, sand or gravel from our quarries, the medium to long term are positive, with high levels or cementitious products from our cement works and of pent-up demand for our products. import terminals. Our vertical integration provides We have successfully positioned our business to take valuable, margin-enhancing routes to market for our advantage of these growth opportunities, particularly core mineral and cement outputs. in infrastructure – including road maintenance – We invest heavily in optimising the efficiency of our industrial and housing, which together account for product manufacturing plants at every stage. the majority of our end-use markets. We also constantly innovate to produce higher-margin specialist performance mixes of both ready-mixed concrete and asphalt. The success of our contracting services business is down to judicious management of contracts and excellent service delivery.

• SOCIAL • CIRCULAR RESPONSIBILITY ECONOMY • ENVIRONMENT AND NATURE

BREEDONGROUP.COM 17 STRATEGIC REPORT OUR MARKETS

KEY MARKETS

As a leading construction materials group in GB and Ireland, Breedon remains well positioned to benefit from growth in our key construction markets over the medium term.

MODEST GROWTH IN GB The Construction Products Association (CPA) reports that activity in our industry was relatively buoyant during the first half of 2019, especially set against the unseasonably poor weather in the comparable period of 2018. However, from the summer of 2019, against the backdrop of persistent political uncertainty and continuing delays to major infrastructure projects, the market slowed and at the time of writing was forecast to have ended the year with output only 0.6 per cent ahead, reflecting a particularly sharp downturn in commercial and repair and maintenance. Demand for mineral products was correspondingly impacted, with aggregates sales down 0.6 per cent, sand and gravel down 5.4 per cent and asphalt down 0.9 per cent. Once again, ready-mixed concrete was the weakest of the downstream product categories, declining by 4.1 per cent. Above: The Crossways Bridge on the Colley Lane Southern Access Road erected by Whitemountain GB VOLUME TRENDS

AGGREGATES – ASPHALT – READY-MIXED CONCRETE – GB MARKET SIZE GB MARKET SIZE GB MARKET SIZE 130.4mt 22.7mt 16.4mm3 2018: 133.3mt 2018: 22.9mt 2018: 17.1mm3 -2.2% -0.9% -4.1%

GB AGGREGATES GB ASPHALT GB READY-MIXED CONCRETE GB CEMENTITIOUS MARKET GROWTH MARKET GROWTH MARKET GROWTH MARKET GROWTH m tonnes m tonnes m cubic metres m tonnes

25.2 30.5 30.6 33.3 30.4 2.9 22.7 22.7 22.9 22.7 7.0 7.7 7.4 7. 6.4 4.0 5.0 4.6 5.2

20 5 20 6 20 7 20 8 20 9 205 206 207 208 209 20 5 20 6 20 7 20 8 20 9 20 5 20 6 20 7 20 8 209*

+4.2% +3.7% -3.5% * Cementitious market volumes for over 5 years over 5 years over 5 years 2019 will be published in late 2020

Sources: Construction Industry Federation, CPA (forecast), CITB, Danske Bank, Euroconstruct, IMF, Mineral Products Association (MPA) members

18 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC CONTINUING STRONG PERFORMANCE IN IRELAND The RoI market once again performed strongly, with LONG-TERM GROWTH MARKETS construction output estimated to have grown by eight In GB, aggregates volumes are 20 per cent below per cent. The residential and civil engineering sectors 2007 levels and per capita production is 20 per performed particularly well. In NI, despite some cent below the EU average, pointing to significant weakness in the second quarter, employment growth upside potential. The UK Government has in the construction sector remained strong and output acknowledged that UK infrastructure is is forecast to have grown by 1.2 per cent over the year. significantly underinvested and is committed to spending increases. OUTLOOK REMAINS POSITIVE By the end of 2021, infrastructure output is The resolution of the Brexit impasse and the election projected to reach £24.7 billion, the highest of a new UK Government with a substantial majority on record, and the National Infrastructure removed much of the uncertainty which had beset our and Construction Pipeline already includes industry for the previous three years and sentiment £413 billion of planned private and public greatly improved as we transitioned from 2019 investment until 2022.* to 2020. In Ireland, the RoI’s Department of Finance and The new Government’s commitment to increased Public Expenditure and Reform predicts that housebuilding, coupled with promised investment in investment in the building and construction a number of key infrastructure projects which have sector will increase from €29 billion in 2019 to been on hold for some time, provide much needed €41 billion by 2023, while construction output in encouragement for our industry in GB and hold out NI is forecast to continue rising by 0.8 per cent the prospect of a significant improvement in per annum to 2023. construction output in the medium term. *Prior to any spending increases announced in the spring 2020 Budget In Ireland, the outlook remains even more positive. Output in RoI is expected to grow by nearly nine per TOTAL INFRASTRUCTURE INVESTMENT cent over the period 2020-21, significantly (% of GDP) outperforming the EU average. Residential investment 35 is expected to be particularly buoyant, increasing by approximately 17 per cent in 2020, with housing 30 completions forecast to reach 45,000 units by 2024 – 25 a significant increase on 2019. Output in NI is expected 20 to continue growing steadily, with any benefits arising from the restored Legislative Assembly still to be felt. 5 0 982 992 988 20 2 986 998 996 20 8 984 20 6 994 20 4 980 990 2002 20 0 2008 2006 2004 2000 Germany France United States United Kingdom

GB INFRASTRUCTURE OUTPUT (£bn)

24.5 23.3 22.6 2.3 20.5

207A 208A 209E 2020F 202 Proj

TOTAL CONSTRUCTION OUTPUT IN REPUBLIC OF IRELAND (% growth)

72

00 Above: The Henry Street Jetty in Enniskillen, constructed 20 5 20 6 20 7 20 8 20 9 2020 202 by Whitemountain

BREEDONGROUP.COM 19 STRATEGIC REPORT OUR STRATEGY: PROGRESS AND PRIORITIES

The six pillars of our strategy are outlined on pages 4 and 5. Here we report on our progress in 2019 and our priorities for the current year.

A CLEAR PURPOSE AND ROBUST GOVERNANCE COMMITMENT TO THE RIGHT CULTURE SUSTAINABILITY AND SOCIAL RESPONSIBILITY

Why this is The most successful Breedon aspires to the As an extractive industry, important companies, financially and highest standards of being a good corporate socially, are those with a corporate governance, in citizen is crucial to clearly articulated purpose order to ensure the full maintaining our licence to and direction. The right support of our shareholders operate. Reducing our culture, rooted in strong and other stakeholders, to environmental footprint and ethical values and attract quality people and our impact on the behaviours, are vital to potential acquisitions, and to communities we serve are Breedon achieving support our likely transition increasingly important its purpose. to a full LSE listing in ethical considerations for due course. our investors.

Lead KPI • Employee TIFR • Underlying basic EPS • Employee LTIFR • Reserves and resources life • Reserves and resources life • Employee TIFR • Emissions intensity • Emissions intensity • Emissions intensity

Progress A Group-wide engagement The Board adopted the QCA We signed up to the GCCA’s in 2019 survey, accompanied by Corporate Governance Code Sustainability Charter, colleague forums and from 1 January 2019. against which we report our consultation with senior The Board was subsequently progress in the Resources management, resulted in a strengthened with the and Relationships section of newly articulated Group appointment of a new this Annual Report. We also purpose and supporting non-executive chairman and began the process of values which are now being two highly experienced recruiting our first Group embedded across non-executive directors. Head of Sustainability. the company.

Priorities Embed the Group’s purpose Appointment of two further Agree performance criteria for 2020 and values in colleague non-executive directors. for all key sustainability induction and training Pursue programme of areas: health and safety, programmes, Personal meetings with Environment, climate change and energy, Development Reviews and Sustainability and social responsibility, all internal and external Governance (ESG) environment and nature and communications. specialists within our the circular economy, and set major shareholders. targets for the future.

Risk • Acquisitions • Acquisitions • Acquisitions factors • Environment and • Environment and • Competition and margins climate change climate change • Environment and • Health and safety • Financing, climate change • Legal and regulatory liquidity and currency • Health and safety • People • Health and safety • Legal and regulatory • IT and cyber security • People • Legal and regulatory • People

20 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

LONG-TERM CONSERVATIVE A GROWING, WELL- GROWTH MARKETS FINANCIAL UTILISED ASSET BASE MANAGEMENT

To secure continued increases in In a highly capital-intensive Our business is dependent on revenues and profits and deliver industry it is important that we securing and replenishing scarce further capital growth, we must maintain financial prudence, mineral resources and exploiting ensure that our markets can in order to meet the investment them efficiently by maximising deliver sustained growth across needs of our business, secure the value of every tonne of the cycle, both in GB and Ireland financing on attractive terms aggregate we extract and every and, in due course, further afield. and ensure that we remain tonne of cement we manufacture. competitive irrespective of market conditions.

• Revenue • Leverage • Underlying EBIT margin • Underlying EBIT margin • ROIC • ROIC • ROIC • FCF • Reserves and resources life

Solid contracting and asphalt Strong earnings growth and Reserves extended at Boyne Bay production platform established continuing strong cash flow and Low Harperley quarries and in North Wales via acquisition of reduced net debt below incremental reserves secured at Roadway. Critical mass secured £300 million and Leverage to Potton and Norton Bottoms. in London readymix market via 1.6x. This was after sustained Development of new sand and Capital Concrete joint venture. capital investment in the business gravel quarry at Willington Post-year-end agreement to at around the level of and reopening of dormant secure assets from CEMEX in depreciation, expenditure on a quarry at Castlepollard in the UK. bolt-on acquisition and County Westmeath. investment in a new joint venture.

Complete acquisition of the Maintain high level of cash flow Continue programme of quarry CEMEX assets and progress and further reduce Leverage extensions, plant openings and planning for integration. following planned completion of new mineral sourcing, including Pursue further bolt-on acquisition of the CEMEX assets the planned opening of a new acquisitions and continue organic in second quarter of the year. sand and gravel quarry at South investment in core business. Preserve headroom for further Boreland in Dumfriesshire. bolt-on acquisitions financed from existing resources.

• Acquisitions • Acquisitions • Acquisitions • Competition and margins • Competition and margins • Competition and margins • Environment and climate change • Financing, liquidity • Environment and • Financing, liquidity and currency climate change and currency • Legal and regulatory • Legal and regulatory • IT and cyber security • Market conditions • People • Legal and regulatory • Market conditions

BREEDONGROUP.COM 21 STRATEGIC REPORT OUR KEY PERFORMANCE INDICATORS

We use our KPIs both to measure our progress against our strategy (pages 20 and 21) and as risk monitors (pages 26 and 27). From 2019 we have added two new financial KPIs (ROIC and FCF) and two new non-financial KPIs (Employee TIFR and Emissions Intensity).

FINANCIAL KPIs

REVENUE UNDERLYING EBIT MARGIN UNDERLYING BASIC EPS £m % pence

38.5 454.7 652.4 862.7 929.6 .9 3. 2.3 2.0 2.5 2.68 3.49 4.4 4.70 5.08

205 206 207 208 209 205 206 207 208 20 9 205 206 207 208 209 +192% +0.6ppt +90% Five-year performance Five-year performance Five-year performance

Why we’ve chosen this measure: Why we’ve chosen this measure: Why we’ve chosen this measure: This metric tracks the Group’s top-line This metric tracks improvements in the This metric tracks improvements in the growth. We also use it as a risk monitor. relative profitability of the Group and enables underlying basic EPS for our shareholders. How we’ve performed: us to monitor progress against our stated We also use it as a risk monitor. Continued good progress through a objective of achieving a 15 per cent How we’ve performed: combination of organic growth Underlying EBIT margin in the medium term. The eight per cent increase in our Underlying and acquisitions. We also use it as a risk monitor. basic EPS in 2019 reflects the improved How we’ve performed: performance of the business. Our Underlying EBIT margin increased, despite Remuneration link: challenging trading conditions in 2019. This measure is used to determine vesting Remuneration link: levels in our performance share plans. A component of this measure is used to determine award levels of our annual cash bonus.

LEVERAGE RETURN ON INVESTED CAPITAL FREE CASH FLOW times % £m

205 .9 0.9 2.0 .6 3.6 .2 0.2 9.9 8.8 49.7 64. 63.3 99.5 90.0

0.2 206 207 208 20 9 205 206 207 208 209 205 206 207 208 209 -4.8ppt +81% Five-year performance Five-year performance

Why we’ve chosen this measure: Why we’ve chosen this measure: Why we’ve chosen this measure: This metric tracks the ability of the Group to This metric tracks how well the Group This metric tracks the Group’s free cash flow generate sufficient cash flows to service the generates returns in relation to the average to ensure that its profits generate sufficient needs of the business and to pursue its capital invested and we target a return across cash to support its capital allocation acquisition strategy, whilst covering its the cycle exceeding our cost of capital. priorities: maintaining a strong balance sheet, contractual debt-servicing obligations. How we’ve performed: sustaining organic investment, pursuing We also use it as a risk monitor. The decline in 2019 reflects the impact of the acquisition opportunities and in due course How we’ve performed: acquisition of Lagan Group (Holdings) maintaining progressive dividend payments. The Group continued to generate healthy Limited (“Lagan”) in April 2018 on capital How we’ve performed: cash flow, enabling us to reduce our net debt invested. However, at 8.8 per cent it more The decline in 2019 reflects the expected to £290.3 million at 31 December 2019, than covers our cost of capital. working capital reversal following an equivalent to 1.6 times Underlying EBITDA. exceptionally strong performance in 2018.

22 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

NON-FINANCIAL KPIs

EMPLOYEE LTIFR EMPLOYEE TIFR per million hours worked per million hours worked

2.72 .87 .4 .8 .05 N/A 5.64 4.28 20.54 7. 7

205 206 207 208 20 9 205 206 207 208 20 9 -61% +10% Five-year performance Five-year performance

Why we’ve chosen this measure: Why we’ve chosen this measure: This industry-standard metric tracks our We believe it is appropriate to report on this health and safety performance and enables wider measure of our health and safety us to maintain a strong health and safety performance, which indicates the total culture. We also use it as a risk monitor. recorded injury frequency rate of the Group. How we’ve performed: We also use it as a risk monitor. We delivered an encouraging performance in How we’ve performed: 2019, reducing our LTIFR to its lowest level in This decreased in 2019, although there is still the Group’s history. work to do to establish a consistent Remuneration link: downward trend. This measure is also used to potentially Remuneration link: modify the level of annual cash bonus. This measure is also used to potentially modify the level of annual cash bonus.

RESERVES AND RESOURCES LIFE EMISSIONS INTENSITY years tCO2e/£ revenue (kg)

59 45 42 39 38 .9

205 206 207 208 209 205 206 207 208 20 9 2019 represents the Group’s first formal SECR report

Why we’ve chosen this measure: Why we’ve chosen this measure: This metric tracks the ability of the Group to This is a reporting requirement of the UK replenish its reserves and resources. We also Government’s Streamlined Energy and use it as a risk monitor. Carbon Reporting (SECR) regime, with which Where a financial KPI is a we have elected to comply a year early. non-statutory measure of How we’ve performed: performance, a reconciliation We also use it as a risk monitor. We continued to preserve our asset base in to the most directly related 2019 and ended the year with reserves and How we’ve performed: statutory measure is provided resources of nearly 900 million tonnes. This is our first report and we will use it as on pages 132 to 134 in note 28 the baseline for all future reporting. to the Financial Statements.

BREEDONGROUP.COM 23 STRATEGIC REPORT MANAGING OUR RISKS AND OPPORTUNITIES

By identifying and managing our existing and emerging risks effectively we can focus on our long-term business opportunities.

Our strategy informs the setting of the Group’s BREXIT priorities. Opportunities, and the risk accepted in The Group continues to manage the potential impacts pursuit of these, are guided by the risk appetite set that Brexit could have on its business and on our risk by the Board and governed by the Group’s risk assessment. Brexit has not been presented as an management framework. additional principal risk, but adds an additional level The Group’s principal risks and uncertainties do not of uncertainty that increases the overall risk profile of comprise all the risks associated with the Group. the Group. Additional risks not presently known or currently With the exception of cement and the importation of deemed to be less material may also have an adverse bitumen, our businesses are all essentially local and effect on the Group’s business in the future. our products do not generally cross national borders. Risk is an inherent and accepted element of doing In addition, the supply chain is generally local. business and effective risk management is In the case of cement and bitumen, however, we do fundamental to how we run our business. The Group’s import into the UK from the EU. approach to risk management is to identify material, The major risk to this importation would be if the UK existing and emerging risks and then to develop left the EU without a deal following the end of the actions or processes to accept, transfer or mitigate transition period in 2020. In such a scenario World those risks to an acceptable level. Trade Organisation (WTO) rules would prevail and the This year we have chosen to present ‘Environment and Group could be exposed to: climate change’ separately from ‘Health and Safety’ as • supply chain delays; a principal and emerging risk, recognising the increase in its profile, both externally, and within the Group. • the requirement for additional working capital; and • tariffs. THE GROUP’S PRINCIPAL RISKS, IN ALPHABETICAL In addition, the Group could also be indirectly ORDER, ARE: impacted by reduced confidence, delays in our wider 1. Acquisitions supply chains and labour shortages. 2. Competition and margins We have contingency plans in place to mitigate the cement and bitumen risks. Contingency planning in 3. Environment and climate change respect of the indirect risks is more challenging and to 4. Financing, liquidity and currency a large extent we are unable to mitigate against them. 5. Health and safety The Group will continue to monitor its Brexit risk 6. IT and cyber security position and respond as clarity emerges. 7. Legal and regulatory COVID-19 8. Market conditions The Group’s operations are based in GB and Ireland, 9. People which have both reported cases of COVID-19. The UK Government’s current response to these cases is to During the year the remaining eight of our net risk minimise the spread of the virus, and at the time of ratings remained unchanged. However, prior to our writing it is too soon to quantify the extent of the risk announcement on 8 January 2020 of our conditional posed. The business has contingency plans in place, agreement to acquire certain assets and operations which focus primarily on the health and wellbeing of from CEMEX in the UK, our assessment of the risks our employees, whilst seeking to minimise the from ‘Acquisitions’ and from ‘Financing, liquidity and disruption to the business. currency’ would have reduced. This is because of the successful integration of Lagan into the Group, its financial performance and the Group’s strong cash generation and deleveraging. Subsequent to the CEMEX announcement and expected completion in the second quarter of 2020, retaining these two risks, as high and medium ratings respectively, remains appropriate.

24 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC RISK MANAGEMENT FRAMEWORK

Board Responsible for the Group’s system of risk management and internal control and for reviewing their effectiveness.

Audit Committee Reviews the suitability and effectiveness of risk management processes and internal controls on behalf of the Board.

Group Finance Director Provides a twice-yearly update to the Board on the key risks and controls within the Group, highlighting the roles and responsibilities of key management in managing those risks.

Group Controls Manager Works with the businesses to identify and assess the key risks and controls and reports them to the Group Finance Director. In addition, facilitates the embedding and monitoring of the Board’s agreed risk management process within the business, under the direction of the Group Finance Director.

Risk-owners/Senior Management Team Directors and senior managers ensure that the risk management framework is implemented effectively within their respective business areas. Their key responsibilities include ensuring an effective risk culture is in place, with risk management embedded in the business.

RISK APPETITE The Group’s risk appetite is reviewed annually and approved by the Board in order to guide management. It defines the level of risk the Group is willing to accept in pursuit of its strategy.

RISK HEAT TABLE

Principal risk Appetite Impact Likelihood Net risk rating Movement (High, medium, (High, medium (Probable, high from prior year low or very low) or low) possible or medium remote) low very low

Acquisitions Medium/High High Possible

Competition and margins Very low High Probable

Environment and climate change Very low Medium Possible N/A

Financing, liquidity and currency Very low Medium Possible

Health and safety Very low Medium Possible

IT and cyber security Very low High Possible

Legal and regulatory Very low Low Possible

Market conditions Medium/High High Probable

People Low Medium Possible

Read our viability statement on page 81.

BREEDONGROUP.COM 25 STRATEGIC REPORT MANAGING OUR RISKS AND OPPORTUNITIES CONTINUED

KPI used as a risk Fit with Risk description How we mitigate them monitor strategy

1. ACQUISITIONS We could overpay for, fail successfully The Group has a strong acquisition track record, supported by our specialist advisers • Revenue to integrate, or fail to deliver the and rigorous due diligence processes. All major acquisitions are approved by the • Underlying expected returns from, an acquisition. Board and all acquisitions are subject to detailed integration plans which are EBIT margin We may also fail to identify potential executed by project teams, with progress monitored by the Board. acquisitions to sustain our growth • Underlying We have developed a management structure which facilitates our growth strategy basic EPS strategy. and, where appropriate, we make arrangements to retain acquired senior management. The Board holds strategy meetings with our external advisers to • Leverage review wider acquisition opportunities and our businesses are all tasked with bringing • FCF forward potential bolt-on acquisition targets for review at Group level. • Reserves and resources life

2. COMPETITION AND MARGINS Increased competition, increases in We maintain a diverse customer base and focus on providing a high level of service. • Revenue energy and hydrocarbon costs or All major contracts are approved by the Board. • Underlying commodity prices, heavy reliance on We operate a strategic purchasing plan to minimise key supplier risks, notably in EBIT margin key suppliers and poor haulage energy and hydrocarbons, including bitumen, and we seek to offset rising management could impact • Underlying commodity prices through our product pricing strategy and hedging programmes basic EPS profitability or cause supply issues. and by optimising our internal supply chain. Experienced Transport Managers An unplanned production outage at a optimise truck availability to match demand and we actively engage with our • FCF cement plant could significantly subcontractors. • Emissions impact our ability to supply cement Both cement plants have real-time performance monitoring and preventative intensity both internally and externally. maintenance and inspection programmes and mitigating cement procurement strategies are in place. We hold Business Interruption Insurance and continue to strengthen business continuity plans.

3. ENVIRONMENT AND CLIMATE CHANGE N/A The Group’s impact upon the The Group is a member of the GCCA and as such must comply with the GCCA • Revenue environment or the effects of climate Sustainability Charter by 2023. We are committed to setting targets, implementing • Underlying change could expose us to regulatory sustainability initiatives and reporting our performance to the GCCA. EBIT margin breaches, significant disruption, We have engaged a Carbon and Energy Management company and implemented • Underlying reputational risk or a reduction in processes to comply with the SECR regulations. demand for our products. basic EPS Management, training and control systems are in place to prevent environmental • FCF Emission restrictions and the incidents, including a Group Health, Safety, Environment and Quality policy. We are transition to a low carbon economy committed to reducing the level of carbon emissions and have stringent emissions • Emissions could impact performance. monitoring, maintenance and inspection regimes at key sites. intensity Further information on our sustainability targets and initiatives can be found within Resources and Relationships on pages 44 to 53 and our SECR reporting is on pages 48 and 49.

4. FINANCING, LIQUIDITY AND CURRENCY The Group may not have sufficient We maintain strong relationships with our key banks and shareholders and the • Revenue financial resources to meet our Group’s committed credit facility runs to April 2022. We manage our liquidity risk by • Underlying obligations as they fall due, or to continuously monitoring forecasts and cash flows to ensure that we maintain EBIT margin continue to invest organically or to significant headroom. undertake acquisitions. • Underlying We use interest rate caps to manage our exposure to changes in floating interest basic EPS The Group borrows at floating and rates and our activities are conducted primarily in the local currencies of our fixed interest rates and is therefore respective businesses, resulting in a low level of foreign currency transactional risk. • Leverage exposed to fluctuations in those rates. We hedge a proportion of our net investments in foreign businesses with foreign • ROIC Our business in RoI exposes us to currency borrowings, but do not generally hedge the income statement • FCF additional foreign exchange risks. transactional risks.

5. HEALTH AND SAFETY Failure to manage health and safety We safeguard the health and safety of employees, contractors and others working • Revenue risks could expose the Group to on behalf of the Group, employing experienced health and safety professionals who • Underlying significant potential disruption, promote a strong safety culture and provide relevant training. We have recently EBIT margin regulatory breaches, liabilities and appointed a Group Head of Health, Safety and Environment to further drive forward reputational damage. our health and safety strategy. • Underlying basic EPS We are constantly improving communication and reporting across the Group. Visible Felt Leadership visits are conducted, our Executive Committee holds regular • FCF safety days and we have a Fleet Risk Group which manages risk and safety issues • Employee LITFR associated with the management of our vehicle fleet. • Employee TIFR

26 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC KPI used as a risk Fit with Risk description How we mitigate them monitor strategy

6. IT AND CYBER SECURITY Disruption to the IT environment Our Group’s dedicated internal IT support teams and external service providers • Revenue could affect our operational continue to monitor and respond to new and expanding cyber risks by implementing • Underlying performance and lead to reputational best practice in IT security management and by continuing to strengthen the Group’s EBIT margin damage, regulatory penalties or disaster recovery plans. significant financial loss. • Underlying All IT system development projects are carefully planned and managed with defined basic EPS Failure to keep up to date with governance and control procedures and we have an ongoing IT systems advances in technology could impact enhancement programme. • FCF demand and our ability to access the market.

7. LEGAL AND REGULATORY A legal or regulatory breach Our Company Solicitor and Group Tax Manager monitor and respond to legal and • Revenue (excluding environmental or health regulatory developments. Compliance policies are maintained and a rolling training • Underlying and safety breaches) could result in programme is in place. We have recently updated our Group Code of Business EBIT margin disruption to operations and Conduct and have clearly defined our purpose and corporate values. We engage reputational damage or regulatory local legal, tax and planning experts for advice on new laws and regulations in our • Underlying bodies could prevent us from markets. basic EPS consolidating the smaller end of the We have clear and regularly updated contracting terms with all our customers and • FCF heavyside materials industry. suppliers. We maintain strict quality control policies and procedures with high quality • Reserves and Product quality issues could result in laboratories and experienced technical teams, and hold all appropriate business resources life customer claims, while planning and accreditations and insurances. licensing restrictions could prevent us Our Planning and Estates teams monitor and respond to changes in planning from operating facilities or extracting regulations, and track our mineral reserves against planning consents. We consult mineral reserves economically. regularly with our stakeholders, especially those impacted by our operations. Our transport teams manage compliance with the Group’s Goods Vehicle Operator licences and road traffic laws.

8. MARKET CONDITIONS Changes in the macro-economic We closely follow published indicators of activity in our sectors, including market • Revenue environment, shifts in Government data and economic forecasts drawn from a wide range of sources. We also maintain • Underlying policy and adverse weather could all regular contact with our key suppliers and customers in order to identify significant EBIT margin have an impact on demand for our events which could potentially impact the Group. Our formal budgeting and products and utilisation of our assets. forecasting process takes account of these assessments. • Underlying basic EPS Difficult economic conditions could We also maintain broad exposure to a diverse range of end-uses for our products also increase our exposure to credit and our presence in both the UK and Irish markets provides geographical diversity. • FCF risk from our customers. Credit risk insurance cover is maintained over the majority of our private sector • Emissions customers and authorisation procedures are in place for both insured and intensity uninsured risk.

9. PEOPLE Failure to recruit, develop and retain The Board approves the Group’s Human Resources policies and the Nomination • Revenue the right people could have an Committee regularly reviews the succession plan for key leadership roles. • Underlying adverse impact on our ability to meet The Remuneration Committee reviews all key aspects of executive and senior EBIT margin our strategic objectives, as could management remuneration and appropriate packages are in place to assist in the failing to create a corporate culture attraction and retention of key employees. We have a standardised grading and • Underlying that is based upon ethical values and benefit structure, with a formal development and performance monitoring process. basic EPS behaviours. Our experienced senior leadership team is supported by high-quality operational • FCF management and we are strengthening this cohort with the roll-out of management and commercial development programmes. We have completed an extensive review to ensure that a common culture, principles, values and standards of behaviour are recognised throughout the business and we continue to recruit upcoming talent onto apprenticeship programmes to improve the talent pipeline.

Key

A CLEAR PURPOSE AND ROBUST COMMITMENT TO THE RIGHT CULTURE GOVERNANCE SUSTAINABILITY AND SOCIAL RESPONSIBILITY

LONG-TERM CONSERVATIVE A WELL-UTILISED, GROWTH MARKETS FINANCIAL GROWING ASSET BASE MANAGEMENT

BREEDONGROUP.COM 27 STRATEGIC REPORT GROUP FINANCE DIRECTOR’S REVIEW

Our conservative approach will enable us to continue pursuing capital growth, whilst supporting the dividend policy announced today.”

Rob Wood Group Finance Director

28 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC During the year we delivered strong earnings Revenue for the year at £929.6 million was eight per growth, underpinned by both organic cent ahead of 2018 (£862.7 million). On a like-for-like basis, revenue was up one per cent on 2018. growth and contributions from our recent Underlying EBIT was £116.6 million, 13 per cent acquisitions, the most significant being the ahead of 2018 (£103.5 million). On a like-for-like April 2018 acquisition of Lagan. basis, Underlying EBIT improved by 10 per cent. Group aggregates volumes for the year were up four It is worth noting that, as reported in our November per cent at 20.2 million tonnes, asphalt volumes were 2019 trading update, the integration of Lagan is now up six per cent at 3.0 million tonnes, ready-mixed largely complete and our current annual cost synergies concrete volumes were down seven per cent at run-rate has hit the targeted £5 million. 3.0 million cubic metres and cement volumes were up The Group’s Underlying EBIT margin improved by three per cent at 2.0 million tonnes. 0.5 percentage points to 12.5 per cent. We continue Excluding the impact of acquisitions and disposals, to target 15 per cent in the medium term, but do not like-for-like aggregates volumes were down three per believe that the pursuit of this target in isolation is in the cent, asphalt volumes down four per cent, ready- best interests of our shareholders; we have therefore mixed concrete volumes down four per cent and introduced two additional financial measures to our KPIs: cement volumes down three per cent. FCF and ROIC. We believe that these two additional measures will ensure better shareholder alignment. These like-for-like volumes were delivered in difficult trading conditions. The political uncertainty created NON-UNDERLYING ITEMS by Brexit overshadowed all our markets in GB during Non-underlying items in the year amounted to a net 2019, although as always there were marked regional pre-tax cost of £8.0 million (2018: £11.8 million), variations dependent upon localised projects and road the major items being acquisition costs, redundancy schemes. In Ireland, in addition to Brexit, market and reorganisation costs and amortisation of acquired conditions in NI were compounded by the absence of intangible assets. the Northern Ireland Executive, whilst activity in RoI was more positive. In Cement, the Irish market remained challenging throughout 2019, with all regions relatively muted apart from Dublin which continued to grow strongly, whilst in GB market conditions were broadly stable.

REVENUE AND UNDERLYING EBIT

2019 2018

Underlying Underlying Underlying Underlying Revenue EBIT* EBIT margin Revenue EBIT* EBIT margin £m £m % £m £m % Great Britain 615.1 62.8 10.2 609.8 61.4 10.1 Ireland 202.0 26.8 13.3 156.3 20.9 13.4 Cement 186.4 36.3 19.5 176.5 31.4 17.8 Central administration – (10.9) – – (11.9) – Share of profit of associate and joint ventures – 1.6 – – 1.7 – Eliminations (73.9) – – (79.9) – –

Total 929.6 116.6 12.5 862.7 103.5 12.0 * Underlying results are stated before acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items.

BREEDONGROUP.COM 29 STRATEGIC REPORT GROUP FINANCE DIRECTOR’S REVIEW CONTINUED

INTEREST The Group takes appropriate tax advice and support Net finance costs in the year totalled £14.0 million from reputable professional firms in relation to any tax (2018: £11.8 million) and included interest on the planning considerations. It is open and transparent in Group’s bank facilities, amortisation of bank its dealings with Her Majesty’s Revenue & Customs arrangement fees, interest on lease liabilities and the (HMRC) in the UK and the Office of the Revenue unwinding of discounting on provisions. The higher Commissioners (“the Revenue”) in RoI and deals with costs in 2019 reflected the interest element of lease any queries in a timely and open manner and on a liabilities following the adoption of IFRS 16 in 2019. full-disclosure basis. In areas of complexity, it is proactive in engaging with HMRC and the Revenue. PROFIT BEFORE TAX The Group has a Prevention of Facilitation of Tax Profit before tax was £94.6 million, 18 per cent ahead Evasion policy, which confirms both its zero tolerance of 2018 (£79.9 million). Underlying profit before tax approach to acts of criminal facilitation of tax evasion was £102.6 million, 12 per cent ahead of 2018 and its commitment to act fairly, professionally and (£91.7 million). with integrity in all its business dealings. As guided previously, the adoption of IFRS 16 – Leases The Group’s tax liabilities arise in the UK and RoI in 2019 under the ‘modified retrospective’ approach subsidiary companies. In terms of the corporation tax did not have a material impact on the Income position, all years up to 2016 are agreed in respect of Statement at the Underlying profit before tax level; an companies acquired prior to 2018. increase in Underlying EBITDA was offset by increased The Group makes a significant contribution to the depreciation and interest costs. However, £47.0 million economies in which it operates through taxation, of additional debt has been recognised on adoption as either borne by the Group or collected on behalf of, at 1 January 2019. This does not impact our ability to and paid to, HMRC or the Revenue. In 2019 the total comply with the covenants associated with our taxes borne and collected by the Group amounted to banking facility, as these are tested by reference to nearly £175 million (2018: over £150 million). accounting policies that were in place at the time the facility was entered into. EARNINGS PER SHARE Basic EPS for the year was 4.64 pence (2018: 4.01 TAX pence), reported after the non-Underlying items The tax charge was £16.6 million (2018: £15.3 million). mentioned above. Underlying basic EPS for the year An Underlying tax charge of £17.3 million totalled 5.08 pence (2018: 4.70 pence). (2018: £15.9 million) was recorded in the year, resulting in an Underlying effective tax rate for the full STATEMENT OF FINANCIAL POSITION year of 16.9 per cent (2018: 17.3 per cent), reflecting Net assets at 31 December 2019 were £839.1 million increased profits in RoI which are taxed at a lower rate (2018: £773.3 million). The net assets continue to be than in the UK. underpinned by the mineral reserves and resources of The Group’s tax strategy is to comply with all relevant the Group, which at the end of December 2019 regulations, whilst managing the total tax burden and totalled nearly 900 million tonnes, and by our two seeking to maintain a stable effective tax rate. well-invested cement plants. The Group seeks to achieve this through operating an uncomplicated Group structure. RETURN ON INVESTED CAPITAL The Group endeavours to structure its affairs in a Using average invested capital, year-end ROIC was tax-efficient manner where there is commercial benefit 8.8 per cent (2018: 9.9 per cent). The decline in 2019 in doing so, with the aim of supporting investment in reflects the impact of the Lagan acquisition in the business and its capital expenditure programmes. April 2018 on capital invested. However, at 8.8 per It seeks to ensure that all tax affairs are administered in cent it more than covers our cost of capital. a lawful and responsible manner and that its actions do not adversely impact its reputation as a responsible CASH FLOW taxpayer. The parameters which govern the Group’s Net cash from operating activities was £136.5 million approach are set by the Board, which regularly reviews (2018: £134.7 million). the Group’s tax strategy. In addition to delivering short-term earnings growth The Board and Audit Committee are kept regularly and optimising working capital, we are positioning the informed of all material developments relating to the Group for the longer term and, as part of that, we are Group’s tax position. The Group Tax Manager oversees investing further in plant and equipment and adding tax compliance activities on a day-to-day basis and acquisitions where these make strategic and reports to senior management. financial sense. There is an integrated approach to governance across During 2019 the Group spent £8.9 million of cash on the business through management control, policies, Roadway and a further £3.0 million on a 43 per cent procedures and training. Risks inherent in the stake in Capital Concrete (2018: £406.3 million on four calculation, collection and payment of tax are acquisitions: Staffordshire Concrete Limited (“Staffs mitigated by documented policies and procedures. Concrete”); Blinkbonny Quarry (Borders) Limited On an annual basis, the Group carries out a review for (“Blinkbonny”); Lagan; and four quarries and an the purpose of complying with the UK Senior asphalt plant from Tarmac Holdings Limited). Accounting Officer legislation.

30 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC 209 NET DEBT MOVEMENT £million

0

(0.3) (2.2) (8.)

(55.8) (5.9) (246.7)

(47.0) (290.3) 43.6 (30.7) 80.2

Opening Underlying Working Interest Tax Net capital Acquisitions Debt Other Reported Impact of Closing debt debt EBITDA Capital expenditure and assumed on statutory IFRS 6 on excluding investment adoption of closing debt closing debt IFRS 6 IFRS 6

Inflow Outflow IFRS 6 impact

The Group also incurred capital expenditure of Aside from the impact of IFRS 16 – Leases, key £56.3 million (2018: £48.6 million). movements include: Underlying EBITDA of Further details of this expenditure can be found in £180.2 million (2018: £154.4 million); a working capital the Business Reviews on pages 33 to 43. outflow of £10.3 million (2018: £11.4 million inflow); interest and tax payments of £30.3 million Proceeds from the sale of property, plant and (2018: £25.8 million); net capital expenditure, including equipment totalled £3.3 million in 2019 IFRS 16 assets, of £55.8 million (2018: £43.7 million); (2018: £4.9 million). expenditure on acquisitions, including the purchase of Proceeds from the issue of shares was £1.0 million a 43 per cent stake in Capital Concrete, of £15.9 million (2018: £171.2 million, which included the net proceeds (2018: £461.3 million); and equity raised of £1.0 million of the equity placing and open offer in respect of the (2018: £171.2 million). Lagan acquisition). The repayment of loans of £69.2 million in 2019 BANK FACILITIES reflects the strong cash generation of the Group At the time of completing the Lagan acquisition in (2018: new loans of £409.7 million and repayment of April 2018 we entered into a new four-year loans of £246.1 million, reflecting the refinancing £500 million facility agreement, comprising a term loan undertaken at the point of the Lagan acquisition). of £150 million and a multi-currency revolving credit Repayment of lease obligations totalled £12.9 million facility of £350 million. (2018: £7.4 million). The facility is subject to a floating interest rate based on LIBOR or, in relation to any loan in Euros, FREE CASH FLOW EURIBOR, plus margin. At 31 December 2019, the FCF was £90.0 million (2018: £99.5 million). total undrawn facility available to the Group amounted The decline in 2019 reflects the expected working to £204.7 million. capital reversal following an exceptionally strong The facility is subject to Group Leverage and Group performance in 2018. interest cover covenants which are tested half-yearly. NET DEBT At 31 December 2019, the Group comfortably complied with these two covenants. Based on our Net debt at 31 December 2019 was £246.7 million on a current estimates, we expect to comply with all our pre-IFRS 16 basis (2018: £310.7 million) and Leverage covenants for the foreseeable future. was 1.4 times (2018: 2.0 times). Including the impact of IFRS 16 – Leases, which was adopted for the first The Group has in place an interest rate hedge time in 2019, net debt at 31 December 2019 was which partially mitigates the risk of interest rate rises £290.3 million and Leverage was 1.6 times. on the Group’s bank loans (see note 20 to the This deleveraging clearly demonstrates the highly Financial Statements). cash-generative nature of the Group.

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CAPITAL ALLOCATION PRIORITIES

Optimise organic investment Maintain to sustain growth a strong balance sheet, providing Support strategy of flexibility to acquisitions to accelerate our pursue growth strategic development Enable a opportunities progressive dividend policy

CAPITAL ALLOCATION POST BALANCE SHEET EVENT We prioritise the maintenance of a strong balance In early January 2020 we announced that we had sheet and deploy our capital responsibly, allowing us entered into a conditional agreement with CEMEX to to commit significant organic investment to our acquire certain assets and operations in the UK for business whilst continuing to pursue acquisitions to £155 million in cash together with the assumption of accelerate our strategic development. £23 million of lease liabilities. This conservative approach to financial management Completion is expected in the second quarter of 2020, will enable us to continue pursuing capital growth for subject to completion of a TUPE consultation process. our shareholders, whilst also supporting the dividend The cash consideration will be financed from our policy announced today. existing £350 million revolving credit facility and a drawdown of an £80 million term loan through exercise DIVIDENDS of an accordion option agreed at the time of the Recognising the Group’s scale, level of maturity and 2018 refinancing. cash generation, the directors propose to adopt a progressive dividend policy from 2021. The Board intends that the Company will pay an interim and a final dividend in the approximate proportions of one-third and two-thirds, respectively, of the annual dividend. Rob Wood The first dividend is therefore currently expected to be Group Finance Director declared with the 2021 interim results. 11 March 2020

32 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC BUSINESS REVIEWS

Breedon reports as three Divisions: Great Britain, Ireland (Lagan and Whitemountain) and Cement (GB and RoI).

Great Britain 34 Ireland 36 Cement 37

Naunton quarry in Gloucestershire

BREEDONGROUP.COM 33 STRATEGIC REPORT BUSINESS REVIEWS

GREAT BRITAIN Our operations in GB generated a one per cent increase in revenues to £615.1 million (2018: £609.8 million) and a two per cent increase in Underlying EBIT to £62.8 million (2018: £61.4 million), with a relatively stronger performance in England and Wales than in Scotland, where markets were very much softer. The political uncertainty created by Brexit overshadowed all our markets in GB during 2019, although as always there were marked regional variations dependent upon localised projects and road schemes. BREEDON NORTHERN Scotland was hampered once again by a lack of major capital infrastructure spending which inevitably created some margin pressure, although the relatively wide spread of end-use markets we serve Above: New stands at Edinburgh Airport helped to protect the business from weakness in individual sectors. New land and mineral purchases extended the reserves Despite the softness of the market, we took a good and resources available at our Boyne Bay and Low share of the available work, including three major new Harperley quarries and we look forward in the current airport runway surfacing projects at Orkney, Aberdeen year to the opening of a new sand and gravel quarry at and RAF Kinloss. We also continued to supply South Boreland in south-west Scotland to replace our significant volumes of high-specification ready-mixed worked-out quarry at Clayshant. concrete to Edinburgh Airport and RAF Lossiemouth. BREEDON SOUTHERN We were particularly pleased to be awarded a Our markets for all products in England and Wales substantial supply and lay surfacing contract by were challenging, with the year becoming more Balfour Beatty for the latest phase of the A9 Dualling difficult as it progressed. Housebuilding was the most project: a 9.5 kilometre stretch between Luncarty and robust sector and growth in the early months Pass of Birnam, part of Transport Scotland’s £3 billion supported the market overall. Outside of housing, upgrade of 129 kilometres of the A9 between Perth whilst commercial work declined, the East Midlands and Inverness. benefited from an active distribution infrastructure The integration of Daviot and Low Plains quarries, market. Local Authority work was subdued, and acquired last year from Tarmac, continued with major highways work sporadic. The West Midlands benefited investments to improve production and profitability at from early HS2 work. Our price performance was these two strategically important sites. Investment in a particularly pleasing, with all major product groups new wash plant at Loak Farm also enhances our ability showing growth over the previous year. to profitably service the nearby A9 contract. Major contracts included the supply of rock armour Elsewhere, we continued to ramp up production from from Minffordd quarry for sea defences at Friog in our new quarry at North Drumboy near Glasgow. North Wales and substantial quantities of ready-mixed Our decision to construct a new ready-mixed concrete concrete to BAM Nuttall’s £100 million Boston Barrier plant at our Raisby quarry in County Durham was flood defence project in Lincolnshire. Welsh Slate immediately vindicated with the award of a maiden continued to capitalise on its global reputation with contract to supply substantial volumes to a large the full re-roofing of the Perth Museum in Australia, flooring contract at a distribution centre near Durham, involving the supply of three square kilometres of which continued through the first quarter of this year. roofing slate. More generally, we made good progress in rationalising Another landmark was the selection by the Royal our network where the footprints of the former Hope Horticultural Society of our proprietary Breedon Construction Materials and Sherburn Minerals Group Golden Amber Gravel for its spectacular new garden concrete plants overlapped. at Bridgewater in Manchester.

34 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

Above: Capital Concrete, our new joint venture in London

Investment continued in the expansion of our quarry and plant network, with the development of a new sand and gravel quarry and concrete plant at Willington near Bedford, a new concrete plant at Despite the softness of the market, Borras in Clwyd and planning permission secured for a new concrete plant at Stevenage together with a new we took a good share of the available rail head and concrete plant at Thorney Mill work, including three major new near Slough. airport surfacing projects at Orkney, Incremental aggregates reserves were secured at Potton quarry in Bedfordshire and we commenced Aberdeen and RAF Kinloss. We also extraction of new minerals from the extension recently obtained at Norton Bottoms quarry in Lincolnshire, continued to supply significant volumes which will provide us with access to an additional of high-specification ready-mixed seven million tonnes of material over the next 15 years. concrete to Edinburgh Airport and One of the corporate development highlights of the year was the formation of our new joint venture with RAF Lossiemouth.” Brett to service the London ready-mixed concrete market. Capital Concrete had already established a We were particularly pleased to see our safety record strong presence in London and by combining our improving across GB in 2019, with a significant London plants in the joint venture with those of Brett, reduction in our Employee LTIFR and a wide range of we secured immediate critical mass in this, the UK’s new safety initiatives implemented, including: largest market. We are both ambitious for Capital enhanced training on crucial isolation and lockout Concrete and look forward to developing a business of procedures; the re-induction of our drivers; the rollout significant scale in London over the next few years. of our new IDC health screening programme; and the The other highlight was the acquisition of Roadway, introduction of a new incident root-cause investigation which gives us a well-established term maintenance training course. and surfacing business in North Wales together with a Looking ahead to the remainder of 2020, we see an newly-erected asphalt plant at Wrexham. This provides improving outlook in GB as investment in our key us with a solid contracting and asphalt production sectors begins to recover. We aim to at least maintain platform in the region which reaches into new markets our market shares, whilst pressing ahead with price and allows our surrounding quarries to maximise value increases to recover past cost increases and improve by internalising more of their output. margins wherever possible.

BREEDONGROUP.COM 35 STRATEGIC REPORT BUSINESS REVIEWS CONTINUED

IRELAND where work will continue through the second quarter of this year. We were also awarded a four-year Our operations in Ireland, trading as Civil Engineering Framework for Newry, Mourne & Whitemountain in NI and Lagan in RoI, Down District Council. increased revenues by 29 per cent to We worked hard at improving our health, safety and £202.0 million (2018: £156.3 million) and environmental performance. An initiative to increase Underlying EBIT by 28 per cent to £26.8 reported safety observations helped reduce our Employee LTIFR and we introduced new asset million (2018: £20.9 million). Both businesses management software to record inspections, usage performed well during the year, with Lagan and repair of company assets. It was encouraging to delivering an especially strong result. see Alpha Resource Management, our waste to energy business in NI, awarded a WISHNI (Waste Industry WHITEMOUNTAIN Safety and Health Forum Northern Ireland) Market conditions in NI were challenging due to Brexit Ambassador Award. uncertainty and the absence of the Northern Ireland We maintained our engagement with local universities, Executive, leading to the sharpest contraction in offering placement opportunities to civil engineering business activity of all UK regions, with construction and quantity surveying students, and also developed orders continuing to shrink and more subdued a Higher Level Civil Engineering Apprenticeship volumes in the second half. Tender opportunities were programme which enables apprentices both to qualify limited and legal challenges to tenders hampered and to benefit from on-the-job training. progress of awards and impacted spending. We aim in the current year to maintain our market Whitemountain nonetheless performed strongly by share, focusing on recovering costs and increasing our concentrating on selective work streams and applying margin. The recent re-establishment of the Northern strict cost control. We continued to build on internal Ireland Executive offers the potential for approval to supply to other Group companies, with a significant be given to a number of delayed infrastructure increase in 2019, and are focused on further increasing projects, which can only be good news for our NI internal aggregates volumes in 2020. business. We also continue to seek commercial A significant investment in relocating and replacing the opportunities in GB for Whitemountain’s contracting primary crusher at our Temple quarry will improve operation, with further potential for expanding internal production capacity, facilitate access to reserves and material supply. increase profitability. LAGAN In addition to our work in NI, Whitemountain also Market conditions in RoI were positive, with a relatively engages in selective contracts in GB. For example, stronger first half. There is some evidence that a more we successfully completed the £18.4 million new road recent modest reduction in tenders has been contract at Colley Lane in Bridgwater, which opened occasioned by the well-publicised overspend on the to the public at an official ceremony in December and new €2 billion National Children’s Hospital in Dublin, received enthusiastic plaudits from Somerset County which has led to short-term reductions in expenditure Council. Elsewhere, we won a substantial contract at elsewhere in the economy. Nonetheless, we delivered DP World London Gateway Port for the construction a strong performance over the year. of 1.3 kilometres of new distribution park spine roads,

Above: The Rose Fitzgerald Kennedy Bridge, the longest in Ireland, part of the New Ross Bypass in County Wexford

36 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC We completed a number of high-profile projects in much-improved safety performance in 2019, including 2019, including the New Ross Bypass in County a totally harm-free kiln shutdown. At Kinnegad, the Wexford for BAM Dragados, which involved fourth annual edition of 5-Star Safety was launched, approximately 15 kilometres of roadworks and nearly incorporating a team-led site safety improvement 30 new structures, including Ireland’s longest bridge. programme, which resulted in nearly 90 safety A successful overlay on Runway 16-34 at Dublin improvements being implemented. Health and airport led to the award of the next phase for the same wellbeing activities were increased in the second half runway. Later in the year we were awarded a sizeable of the year at Hope and at Kinnegad, with workshops contract to supply asphalt to the new N4 Sligo to provided across both sites. Collooney dual carriageway. Sustainability, most notably the call from across the Our programme to extend our quarry network in RoI political spectrum for agreement on ‘Net Zero’ carbon continued with the reopening of a dormant quarry at targets, has risen to the top of our agenda and we are Castlepollard in County Westmeath, bringing to six the in the process of finalising a definitive sustainability number of active quarries operated by Lagan. roadmap in conjunction with the GCCA and MPA A new bespoke health and safety training programme, which will drive our strategy for substantially reducing ‘360° Safety’, which focused on the interaction carbon emissions from our cement plants within an between people and vehicles, was completed by all achievable timeframe. Lagan employees and contractors. In addition, In the remainder of the current year, our commercial Lagan successfully migrated and gained accreditation priority is to implement price increases to recover cost to the ISO 45001 Safety Management Standard. inflation. A major investment in a new bag filter to Later in the year we completed our successful annual replace the electrostatic precipitator system is now programme of dyeing all the lakes in our dormant underway at Kinnegad, with further alternative fuel quarries black, to discourage trespass and swimming. trials planned during the year. We are also exploring Looking ahead to the remainder of 2020, the further alternative fuel options at Hope, together with prospects for construction in RoI remain very planning applications for a supplementary raw material encouraging, with all forecasters predicting a healthy delivery system and a longer-term project to extend growth in output on the back of a continuing the limestone quarry. strong economy. CEMENT Our Cement business delivered a six per cent increase in revenues to £186.4 million (2018: £176.5 million) and a 16 per cent increase in Underlying EBIT to £36.3 million (2018: £31.4 million) against the backdrop of mixed markets. The Irish cement market remained challenging throughout 2019, with all regions relatively muted apart from Dublin, which continued to grow strongly. In GB, market conditions were broadly stable. Confidence in both markets was clearly impacted by uncertainties around Brexit.

Major investments at Hope Works included the Above: Barnett Dock aggregates terminal, Port of Belfast completion of our raw mill drive and kiln shell replacement projects, together with the overhaul of our PCA rail fleet. All three kiln shutdowns at Hope and Kinnegad were completed ahead of time and on budget. Kiln reliability at Hope remained at high levels, with clinker production ahead of 2018. Kinnegad met all clinker demand and averaged more than 72 per cent usage of alternative fuels, ahead of budget, with successful trials of solid recovered fuel (SRF) paving the way for further progress. Kinnegad also commenced its LEAN waste project with the emphasis on delivering further environmental improvements and cost-savings. In all, our cement kilns consumed around 218,000 tonnes of waste in 2019. Safety initiatives at Hope involved widespread engagement with our colleagues both at the Works and in our road and rail fleet, which resulted in a Above: Kinnegad quarry and cement plant in County Westmeath

BREEDONGROUP.COM 37 STRATEGIC REPORT

MAKING A MATERIAL DIFFERENCE FROM AIR TO SEA

ENSURING SAFE LANDINGS Our expertise in airport infrastructure helps to keep aircraft flying in and out of some of the busiest airports in GB and Ireland. In 2019 Lagan carried out a major rehabilitation project on Runway 16/34 at Dublin Airport, including the installation of specialist Marshall Pavement surfacing material, with all works carried out overnight. Lagan was also nominated for an Irish Construction Excellence Award for exceptional delivery of the rehabilitation of 2,400 metres of 30-year old runway at Shannon Airport, involving a team of 90 colleagues and a fleet of 70 vehicles, again with all the work carried out overnight. When the RAF began replacing its ageing fleet of Nimrod MR2s, Breedon was chosen to supply material for construction of hangars and aprons at RAF Lossiemouth to accommodate its successor, the Boeing P-8A Poseidon maritime aircraft. And at Edinburgh Airport, Breedon was selected to supply material for new aircraft stands, the latest phase in a £220 million five-year investment programme at the international hub. During the year we also carried out major runway resurfacing works at Aberdeen and Orkney Above: Runway resurfacing at RAF Kinloss (courtesy of the Airports and at RAF Kinloss. Defence Industry Organisation)

38 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

PROTECTING This package of coastal works provides OUR COASTLINES the airport with the protection required against the North Atlantic.” Our products are widely used for coastal protection and flood defences, Keith Inglis and for the construction and Head of Infrastructure Services at Highlands and maintenance of harbours. Islands Airports Limited Benbecula Airport in the Outer Hebrides is shielded from the worst of the North Atlantic weather by several thousand tonnes of gabion stone from our Druim Reallasger quarry in North Uist and in 2019 we supplied substantial quantities of rock armour from our Minffordd quarry to Friog Corner in North Wales to protect a Meirionnydd village from rising sea levels. In Lincolnshire we supplied a specially designed high-strength self-compacting concrete to the £100 million Boston Flood Barrier project to protect the town from tidal flooding. Towards the end of the year we supplied significant quantities of concrete to a customer at the Port of Blyth for construction of specialist mattresses to protect the East Anglia One offshore windfarm. Cromarty Firth Port Authority, Aberdeen Harbour, Whitehills Harbour and Dunbar Harbour were among the many other customers who benefited from our products, including specialist underwater concrete for pier repairs and slipways.

Above: At work on the Boston Flood Barrier Full page: Coastal protection works at Benbecula Airport

BREEDONGROUP.COM 39 STRATEGIC REPORT

BRINGING PROSPERITY TO OUR TOWNS AND CITIES Breedon is a major provider of products and services to the local and national highway networks of GB and Ireland, ensuring that our roads are safe to drive on and our communities have the local transport infrastructure they need to flourish and prosper. In 2019 Whitemountain brought relief to the residents of Bridgwater in Somerset with completion of the £18.4 million Colley Lane Southern Access Road, including the construction of two new bridges, 840 metres of new carriageway, together with cycleways and footpaths. The new road scheme freed a major bottleneck in the town and opened up brownfield development sites to support the delivery of planned housing and employment land. Meanwhile, in Kettering, Northamptonshire, Breedon Southern and Whitemountain are undertaking enabling works to facilitate a major urban extension programme, including the eventual construction of 5,500 dwellings, community facilities and new public open spaces.

Full page: The Colley Lane Southern Access Road near Bridgwater in Somerset

MAKING A MATERIAL DIFFERENCE FROM TOWN TO COUNTRY

40 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

HELPING OUR RURAL COMMUNITIES PROSPER Breedon is at the heart of many farming communities in GB and Ireland, providing the infrastructure farmers need to keep their crops and livestock healthy. Our products are used in the construction and maintenance of farm roads, animal housing, stables, milking parlours, workshop floors, crop storage and silage clamps. And our agricultural lime is highly sought after as a fundamental natural ingredient in soil care, helping to increase crop yields. In Ireland, Lagan is helping to develop new geosynthetic solutions to the problem of failing ‘bog rampart roads’, which float on peat and have been moving and splitting in recent years due to drought-like conditions which have seen the water table fall. And of course no countryside community would survive without the rural road network which keeps it connected. Breedon is a major supplier of asphalt, contracting services and highway maintenance to national highways agencies and rural local authorities, linking our towns, cities and villages across GB and Ireland.

Above: Whitemountain at work on the non-national roads network in Donegal

BREEDONGROUP.COM 41 STRATEGIC REPORT

CONTRIBUTING TO GREAT WORK SPACES We believe that working environments should look good and feel good. From smart office buildings to high- throughput distribution centres, manufacturing plants and retail parks, we supply the construction materials that our customers use to build great work spaces. In 2019 we supplied material for construction of Glasgow’s landmark office building at 177 Bothwell Street, part of the ambitious Bothwell Exchange development. Its 13 storeys and 313,000 square feet of luxury highly sustainable office space make it the largest office building in the city – and it even boasts an 8,000 square feet rooftop terrace, complete with a running track.

Above: 177 Bothwell Street in Glasgow

Thanks for all the great work you have done... The service has been second to none.”

David Griffiths Site Engineer, 177 Bothwell Street

42 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

MAKING A MATERIAL DIFFERENCE FROM WORK TO PLAY

AND PLACES TO RELAX We make it possible for thousands of visitors every year to visit our stately homes and historic monuments, which are graced with durable, hard-wearing walkways and pathways built from our specialist self-binding Golden Amber gravel, holder of the Royal Warrant. The Centenary Garden at Exbury in Hampshire (pictured below) is just one of the latest tourist attractions to benefit from Breedon’s Golden Amber gravel pathways, which blend perfectly into this tranquil environment designed by Royal Horticultural Society gold medal award-winning designer Marie-Louise Agius.

Full page: The Great Pagoda in the Royal Botanical Gardens at Kew, roofed with Welsh Slate

BREEDONGROUP.COM 43 STRATEGIC REPORT

RESOURCES AND RELATIONSHIPS

In the following pages we report on the key resources and relationships on which the success of our business depends.

Introduction 45 1. Health and Safety 46 2. Climate Change and Energy 48 3. Social Responsibility 50 4. Environment and Nature 52 5. Circular Economy 53

Craigenlow quarry in Aberdeenshire

44 BREEDON GROUP ANNUAL REPORT 2019 RESOURCES AND RELATIONSHIPS STRATEGIC REPORT STRATEGIC In 2018 Breedon became an active member This year we will add to our resources in this critical of the GCCA, which aims to drive industry area with the appointment of a dedicated Head of Sustainability, who will actively engage with academic leadership in the manufacture and use of and engineering institutions, sustainability experts and cement and concrete, improve the social our stakeholders, to actively encourage our businesses and environmental impact of the sector’s to seek best practice and technological innovation. activities and products and foster innovation As we begin embedding the GCCA’s sustainability and collaboration with industry associations pillars across the Group, we have elected to report our Resources and Relationships activity in 2019 under and innovators along the length of the these five headings, which will be the model for all our built-environment value chain. future annual reporting, with clear performance criteria In 2019 we made a strong commitment to the five and targets. There is inevitably significant overlap pillars of sustainability contained in the GCCA’s between the pillars, but we have sought wherever Sustainability Charter and its associated guidelines: possible to position our reports where it seems most Health and Safety; Climate Change and Energy; Social appropriate to do so. Responsibility; Environment and Nature; and the Circular Economy. Breedon has until 2023 to ensure that these are fully embedded across all our business GROUP SUSTAINABILITY PRIORITIES FOR 2020 lines, that our KPI reporting is harmonised with others Complete collation of GCCA KPIs and confirm our in our sector and that we report all relevant internal targets in line with the five pillars. performance data. In many cases we will be complying with other statutory reporting requirements, some of Reissue revised policies to our stakeholders. which are more onerous than those of the GCCA, but Recruit a new Head of Sustainability. we will always comply with the GCCA’s guidelines as a minimum and in general will seek to go well Increase the rate of recycling of on-site waste and beyond them. internally-produced product. Implement a strategy to reduce fuel consumption in our transport fleets. Continue to introduce more sustainable, green We made a strong commitment to the five energy substitutes into our business and reduce pillars of the GCCA Sustainabilty Charter.” reliance on fossil fuels and their derivatives. Ensure that all our managers are trained in sustainability principles, with the support of the In 2019 we established a GCCA working group, with Institute of Environmental Management and representation from all business lines, charged with Assessment. revising our targets and policies. We also appointed a new Head of Health, Safety and Environment, together Standardise energy and carbon reporting systems with an Environment and Systems Adviser specialising across the Group. in data collection and analysis.

Above: Ashwood Dale quarry in Derbyshire, where recently restored land is slowly blending into the landscape

BREEDONGROUP.COM 45 STRATEGIC REPORT RESOURCES AND RELATIONSHIPS CONTINUED

In August we appointed our first Group Head of Health, Safety and Environment to ensure closer 1 alignment of our health and safety strategy and to HEALTH consolidate best practice from around our businesses. Our SHE (safety, health and environment) Assure software platform was extended to include a health AND SAFETY and safety training module, enabling us to request and book sector-specific courses directly against a full The GCCA Charter requires us to apply training matrix; an environment and sustainability and report against its good safety practice module; and an asset module for recording safety- guidelines and promote the sharing of good critical equipment. In November, Whitemountain health practices. launched a programme for managing occupational road risk in NI, including both off-road assessment and We continued our journey in 2019 towards our ultimate on-road driver training. goal of Zero Harm, seeing a significant decrease in As 2019 closed, our Cement Division focused on the both Lost Time Injuries among employees and next phase of their behavioural safety journey in GB, contractors and in our Employee LTIFR, which fell from involving a detailed employee and management 1.81 to its lowest ever level of 1.05 per million hours cultural survey and senior management behavioural worked. As a wider measure, we also track our workshops across both the Hope cement works and Employee TIFR, which includes all incidents – however their associated depots and terminals. minor – requiring medical treatment; this saw a reduction from 20.54 in 2018 to 17.17 in 2019. Our contracting services businesses in GB introduced a new HAV (Hand Arm Vibration) electronic recording January saw Back to Work presentations and tool box and evaluation system to replace older software and talks delivered to the whole business, and Lagan paper-based systems for monitoring power tools used completed its 360° Safety programme in RoI. on their surfacing sites. A bi-monthly wellness newsletter was launched across the business in February and in March over 800 Lagan, Whitemountain’s Alpha landfill site and our company-employed and contract drivers were Kinnegad Works all successfully achieved accreditation re-inducted on safety-critical tasks in Breedon to the new ISO 45001 health and safety management Southern. Incident investigation programmes were standard and Whitemountain won the Regional NI held throughout the business to improve the quality of Award in the 2019 NISO/NISG All Ireland incident investigations and establish root causes, while Occupational Safety Awards. Our tile business in updated LOTOTO (Lock Out – Tag Out – Try Out) NI also received a Silver Award in the RoSPA Annual training was rolled out across the Group using Health & Safety Awards. materials customised from the MPA.

The team at Breedon’s roof tile works receiving their Silver Achievement Award at the RoSPA Health & Safety Awards in Glasgow, one of many safety awards won by Breedon colleagues around the Group in 2019.

46 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

EMPLOYEE TIFR PRIORITIES FOR 2020 per million hours worked Target further improvement in Employee LTIFR for 2020. Launch new Group Health and Safety Procedures manuals, including revised Group Health and Safety Standards. Renew focus on enhancing pedestrian and vehicle segregation, including rollout of MPA guidelines and best practice. N/A 5.64 4.28 20.54 7. 7 Integrate our Group statutory inspection 205 206 207 208 20 9 programmes to further enhance good practice and allow easier management decision-making on priority areas for improvement. EMPLOYEE LTIFR Extend occupational health screening X-ray service per million hours worked into prevention of exposure to RCS (Respirable Crystalline Silica) and complete all remaining medical assessments. Increase the number of mental health first-aiders, as part of a broadening health and wellbeing programme. Roll out Occupational Road Risk Policies and training. 2.72 .87 .4 .8 .05

205 206 207 208 20 9

Above: Confined space training at Whitemountain

BREEDONGROUP.COM 47 STRATEGIC REPORT RESOURCES AND RELATIONSHIPS CONTINUED

ENERGY AND CARBON STATEMENT 2 The below statement contains Breedon Group’s annual energy consumption, associated relevant greenhouse CLIMATE CHANGE gas (“GHG”) emissions, and additional related information. Under new UK SECR regulations our UK businesses will be required to include energy and AND ENERGY emissions data from electricity, gas and transport within their annual company reporting from 2020. The GCCA Charter requires us to develop As a Group, we are exceeding the legal minimum a climate change mitigation strategy and reporting requirements by broadening the scope to include non-UK information and all Scope 1 and 2 publish and report on targets and progress. emissions in this Group statement. In addition, the As part of our legal disclosure obligations, cement manufacturing process produces a significant we are required from the current financial amount of process emissions. These emissions have year to report against the UK Government’s also been included here to provide a true reflection of our carbon footprint. SECR regulations, which are somewhat more stringent than that of the GCCA. METHODOLOGY We have elected to comply with this The methodology applied to the calculation of requirement a year early and our full 2019 greenhouse gas emissions is the ‘GHG Protocol Corporate Accounting and Reporting Standard’. SECR report follows. An ‘operational control’ boundary has been applied. Carbon conversion factors have been taken from ‘UK Government GHG Conversion Factors for Company Reporting – 2019’. Emissions are reported as

CO2e. Only ‘location-based’ electricity emissions have been reported.

ENERGY USE AND GREENHOUSE GAS EMISSIONS The table below shows the total annual energy use associated with the consumption of: electricity, natural gas, all other fuels combusted on-site, and fuel consumed directly for business transport purposes, for the year ended 31 December 2019.

ENERGY CONSUMPTION AND EMISSIONS 2019 By reporting segment

Great Britain Ireland Cement Group Total On-site combustion (MWh) 426,798 176,629 1,789,461 2,392,888 Electricity (MWh) 73,478 15,464 240,438 329,380 Road Transport (MWh) 65,099 13,516 16,916 95,531 Energy (MWh) 565,375 205,609 2,046,815 2,817,799

Scope 1 (tCO2e) 124,499 47,867 475,184 647,550

Scope 2 (tCO2e) 19,341 5,316 70,772 95,429

Total Energy Emissions (tCO2e) 143,840 53,183 545,956 742,979

Process Emissions Scope 1 (tCO2e) – – 1,021,060 1,021,060

Total Emissions (tCO2e) 143,840 53,183 1,567,016 1,764,039

By geographic location

Energy MWh % tCO2e (inc. process) % UK 2,069,353 73% 1,294,852 73% Rest of World 748,446 27% 469,187 27% Total 2,817,799 100% 1,764,039 100%

48 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC

Above: Investment in alternative fuels and new technology has made our Kinnegad cement works increasingly energy-efficient

EMISSIONS INTENSITY • A number of energy reduction measures undertaken For the purposes of baselining and ongoing by Whitemountain, including: converting all external comparison, we have chosen to express the emissions lighting to LED, investment in new energy-efficient using a carbon intensity metric. The intensity metric primary crushing plant, dumpers, loading shovels chosen is £ revenue. and excavators throughout its quarries, the introduction of charging points for electric vehicles, The resultant emissions intensity is: 1.9kg CO e/£ revenue. 2 and ensuring that all HGVs meet the latest European ENERGY EFFICIENCY ACTION emission standards. During the course of 2019, Breedon undertook a • A continued push towards alternative fuel number of actions to reduce our energy consumption. substitution at both our Kinnegad and Hope cement Under the UK Energy Savings Opportunity Scheme plants, to reduce our reliance on fossil fuels. We look (ESOS), our UK operations undertook a for continual improvement through external comprehensive energy audit, reviewing energy assessment and accreditation under ISO 14001 but consumption across the business. This process has in 2019 we also extended our commitment through outlined a number of opportunities which will form the rollout of ISO 6001 (responsible sourcing), the basis of an ongoing energy reduction programme. initially in our ready-mixed concrete business. We have also established a new centralised data • Extension of the scope of Whitemountain’s capture process which will enable the organisation to ISO 50001 Energy Management System to include better monitor energy consumption and improve the sand dredging operation at Lough Neagh and all granularity of reporting. its concrete plants, meaning that all Whitemountain Other energy reduction activities and sites in NI are now certified to ISO 50001. achievements include: • 100 per cent of the electricity we purchase in GB and • The utilisation of new, low-drag, filter bag Ireland is now from renewable sources. technology at our Kinnegad cement plant has resulted in a significant reduction in the energy consumption associated with this part of the PRIORITIES FOR 2020 process, as well as a reduction in waste generated. Recruit Head of Sustainability who will focus on • In GB, improvements to air-conditioning systems, building our plans to deliver energy savings replacement of fluorescent lighting with LED, identified in the ESOS audit in 2019. measures to reduce office solar gain, and the Work towards implementing the recommendations replacement of several pumps and conveyor motors of the Taskforce on Climate-related Financial with more efficient equipment at several sites. Disclosures (TCFD).

BREEDONGROUP.COM 49 STRATEGIC REPORT RESOURCES AND RELATIONSHIPS CONTINUED

Our Hope cement works was once again very active in its local community, hosting a highly-successful open 3 day for local residents and businesses to celebrate its 90th year of operation and using its annual golf day to SOCIAL raise funds for local hospice and end-of-life care charities in Derbyshire. RESPONSIBILITY In NI, the Whitemountain Programme celebrated its substantial investment in local community and The GCCA Charter requires us to publish biodiversity projects since its formation in 2008, a Code of Conduct incorporating the with 200 projects supported to date (see page 52). principles of internationally proclaimed We continued to focus much of our effort on human rights, apply the Association’s educational support, working in partnership with a large number of local schools, colleges and universities Social Impact Assessment guidelines and across GB and Ireland. A variety of young sportsmen establish a systematic dialogue process with and women benefited from our sponsorship of kit or stakeholders (see also pages 54 and 55). playing pitches, not to mention our continued sponsorship of the Highland League in Scotland, now STAKEHOLDER ENGAGEMENT in its 10th year. For the last 10 years Breedon has pursued its mission to be the safest and most profitable construction materials company in the UK and, more recently, PRIORITIES FOR 2020 Ireland. But we acknowledge that our corporate Maintain positive engagement with communities responsibilities extend well beyond performing well for neighbouring our operations and establish our shareholders. Whilst we continue to pursue community liaison groups at all major quarry sites. profitable growth and capital appreciation for our financial stakeholders, who fund our development, Publish significant historic knowledge discovered we are also committed to improving the lives of all our through archaeological investigations in our stakeholders, both inside and outside the company. quarries. It is this commitment which gave birth to the company purpose which we have articulated for the first time in this report: to make a material difference, to the lives of our colleagues, customers and communities. This clear purpose will be a cornerstone of our strategy for the future, guiding our behaviour and setting the benchmark against which we will measure all our stakeholder engagement activity. Our purpose is supported by four simple business principles, or values, which we developed in 2019 following a wide-ranging engagement survey among our 3,000 colleagues. They are: • Keep it simple • Make it happen • Strive to improve • Show we care During 2020 we will be working hard to firmly embed these values at every level of our business. We will provide our colleagues with the tools and training they need to ensure that these values become part of Breedon’s DNA and are evident to everyone with whom our colleagues come into contact. This is not to say that we did not continue to support our customers, colleagues and communities in 2019. From practical support for the BBC’s DIY SOS: The Big Build TV programme and ITV’s Love your Garden, to donations of stone for a World War II memorial in Scotland and a Saxon heritage memorial in Cambridgeshire, Breedon provided material and manpower for a wide variety of community projects. Above: Members of St Teresa’s Youth Centre in Belfast, among the many beneficiaries of the Whitemountain Programme

50 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC In the last quarter of 2019 we piloted new commercial learning programmes which are now being launched across our GB business. The Commercial Leaders MARIA Programme (CLP) is targeted at managers in commercial and customer service roles and the Maria Dargie joined Breedon straight Commercial Development Programme (CDP) is from school, following completion of designed for our commercial and customer service her Scottish Highers, beginning her colleagues. Both will continue to run throughout 2020 apprenticeship as a Customer Service and into 2021. In 2019 we launched our Driver Apprenticeship Administrator at Clatchard quarry in Fife. Academy in Breedon Southern, recruiting nine new On completion of her apprenticeship, Maria was colleagues who, as part of their apprenticeship, will awarded an SCQF Level 6 in Business Administration obtain a light goods vehicle driving licence. To date and a Diploma in Digital Application. nearly all the apprentices have successfully obtained Jennifer Forbes, Customer Service Manager for their licence, with our remaining colleagues currently Fife & Tayside, who also started her working life as taking their tests. In all, we recruited 25 new an apprentice, said: “It’s definitely a great way to apprentices, trainees and placement students across attract young people into our industry. It’s been the Group, taking the total number of colleagues on fantastic to be a part of Maria’s development apprenticeships in 2019 to 45. We also had our first during the last couple of years.” successful ‘Mastership’, with a colleague achieving an MBA with Distinction from Cranfield University. Since completing her apprenticeship at the end of 2019, Maria has moved into a trainee role As our Group expands, we are adapting and supporting the Contracting Commercial team. developing to support our growing business. Changed and newly-formed teams have been supported with resilience workshops, offering tools that can improve their physiological, emotional and cognitive resilience and wellbeing, drawing on techniques used by elite athletes to develop mental toughness, as well as advice and guidance on how to improve energy levels and sleep. In 2019, a number of colleagues attended one of these workshops and they will continue to be available in 2020. Building on a fantastic year for results in 2018, 18 colleagues achieved qualifications from Derby University in 2019, of whom eight were awarded Distinctions in their Foundation Degrees. We continued to sponsor advanced learning for our colleagues, with 37 new enrolments in further and ENGAGEMENT WITH OUR COLLEAGUES higher education programmes in 2019. As part of our work to develop a clear purpose and We continued to provide coaching and mentoring values for our business, we undertook the Group’s support to our senior colleagues. Seventeen senior first-ever large-scale employee engagement survey in managers spent one-to-one time developing their 2019, which sought to establish current engagement leadership skills with the support of a performance levels in our business and identify areas where we coach. Further leadership development took place need to improve working conditions for our towards the end of 2019 through a 360-degree colleagues. The survey revealed generally encouraging feedback exercise and behavioural profiling of the results, with relatively high levels of engagement, pride Executive Committee. and loyalty to Breedon. Health and safety and relationships with managers and colleagues registered among the highest scores and PRIORITIES FOR 2020 trust in our leadership is solid. The survey, however, pointed to a need for improved communication of our Embed the Group’s purpose and values throughout strategy to our colleagues and for more visibility of our the business. senior management team in the business, both areas Continue to deliver our Management Development of focus for us in 2020. Programme and embed the behaviours in the In our 2018 report we committed to expanding the business. reach and content of our Management Development Build the capabilities of our commercial teams Programme (BMDP) and we continued to roll it out through our CLP and CDP programmes. throughout 2019, taking the total number of managers who have completed the programme to over 200. Continue delivering on our strategy to recruit In addition, we introduced a standalone Finance for through apprenticeships. Managers workshop, delivered by our internal finance, Design programmes and solutions to develop our marketing and strategy teams, which is being leaders of the future. extended across the UK and Ireland in 2020.

BREEDONGROUP.COM 51 STRATEGIC REPORT RESOURCES AND RELATIONSHIPS CONTINUED

Having joined the MPA’s Good Neighbour Scheme, we signed up all our quarries in NI and our dredging 4 operation at Lough Neagh. The aim of the scheme is to engage fully with our local communities and strive ENVIRONMENT to be good neighbours. Lagan has been piloting with local authorities a range AND NATURE of geogrid/geosynthetic solutions to the major problem of damaged roads in boggy sections of the The GCCA Charter requires us to apply Irish countryside. These ‘bog rampart’ roads literally the Association’s Environment and Nature float on the peat and drought-like conditions in 2018 guidelines and set and report on emissions caused many of them to fail. Working with Titan Environmental Containment in Canada, Lagan (see SECR report on pages 48 and 49), conceived a number of pilot schemes using a variety biodiversity and water usage. of geogrid and glass grid solutions to reinforce the soil We undertook a number of initiatives in 2019 to reduce and provide a more robust base for the roads. the impact of our operations on the environment, make our products more eco-friendly and encourage conservation and biodiversity. PRIORITIES FOR 2020 Our search for more sustainable construction products Continue to husband our assets by converting continued, with the extension of our BREEDON Eco™ existing mineral resources into reserves. range of eco-friendly concretes for drives, shed bases, Maximise economic viability and minimise foundations and agricultural applications. These environmental impact through innovative quarry products, developed by our in-house R&D Team, designs. use responsibly-sourced recycled aggregates with low embodied carbon which reduce reliance on extraction Continue to create educational opportunities in of virgin materials and are currently being test- geodiversity and improve awareness of our industry launched in East Anglia. through our employee STEM (Science, Technology, Engineering and Mathematics) ambassadors.

The Whitemountain Programme has distributed over £6 million to community and biodiversity projects.” One of the achievements of which we are most proud is our work on the £100 million Boston Flood Barrier in Lincolnshire, where we designed and deployed special high-strength self-compacting concrete mixes to effect a robust barrier against tidal flooding. This year sees construction of the dock ‘wet gate’, using the same specialist limestone mixes and proprietary concretes. In NI we continued to work closely with voluntary organisations to promote conservation and enhance Above: Restored wetland at West Deeping quarry local biodiversity. This included helping the Belfast Hills Partnership (BHP) to develop a new native woodland nursery near our Blackmountain quarry. We also worked with BHP volunteers to plant native tree species at Blackmountain using recycled soils and dredging spoil which would otherwise have been bound for our inert landfill facility. The Whitemountain Programme funded 34 projects in 2019, allocating nearly £1.5 million to various community and ecological projects within a 15-mile radius of our Mullaghglass landfill site. Since its inception in 2007, the Whitemountain Programme has distributed over £6 million of Landfill Communities Fund funding to fantastic community and biodiversity projects, helping communities bring their plans for positive change to reality. Above: Our cement works in the Hope Valley has set aside land for the Derbyshire Wildlife Trust’s Forest School, where children can get back to nature in a safe environment

52 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC We increased the proportion of reclaimed asphalt pavement (RAP) used in our asphalt plant in Rossmore 5 to approximately 25 per cent by the end of 2019, reducing our dependence on virgin aggregates. CIRCULAR We also secured a permit to accept planings at our Kinnegad depot, where they will be reprocessed and ECONOMY reused as RAP. At our Kinnegad cement plant, the new SRF The GCCA Charter requires us to promote processing facility was commissioned in conjunction the principles of the circular economy with Panda Recycling and began operations in across our value chain, in particular applying February. The facility allows our cement plant to process incoming SRF to a smaller and more uniform the guidelines developed for fuel and raw sized fuel, which in turn allows our operations to material use in cement production (see under maintain tighter control over the quality of the fuel, ‘Climate Change and Energy’ on pages 48 increasing efficiency and maximising fossil and 49). fuel replacement. We commissioned an innovative 3.5 hectare system to For Breedon, it is useful to think of the application of manage and treat pumped groundwater during the the circular economy to our business under the three deepening of our Rossmore quarry in County Cork. key principles of ‘reduce, reuse, recycle’. We have over Intercepted groundwater is pumped to a settlement many years implemented a wide variety of schemes lagoon system for treatment prior to discharge to and policies to reduce our dependence on fossil fuels ground via an infiltration pond, effectively recharging and other scarce or environmentally compromised raw the underlying aquifer and eliminating the risk of materials and we made further progress in these areas over-abstracting groundwater. in 2019. To take a selection of examples: In Scotland we worked with our associate company BEAR Scotland to resurface part of the A92 trunk road PRIORITIES FOR 2020 and with Transerv on the A75, both using recycled tar planings processed at our Clatchard and Tongland Continue to maximise the use of alternative fuels in quarries via a novel technology from Eurovia called cement manufacture. Recofoam®. This innovative system reduces CO2 Identify suitable plants for installation of RAP emissions during the production process by around systems, in order to increase our use of RAP and 50 per cent. At Connah’s Quay in Wales, we have been reduce our dependence on virgin aggregates. piloting the use of recycled plastic as a substitute for bitumen, which will reduce the use of oil-based Continue to ensure that waste aggregate and other products in the manufacture of asphalt and should materials are reused or recycled wherever extend the life of roads in Flintshire. practicable, with consideration to life cycle assessment. In RoI, we significantly reduced the need to dispose of waste product by reprocessing around 35,000 tonnes of scalpings and other material within our quarries in County Cork to produce saleable products and we plan to more than double this during 2020.

This is only the second time that this technology has been used in Scotland.”

A finished stretch of the A92 in Scotland, Alan Mackenzie surfaced with recycled tar planings Managing Director, Breedon Northern

BREEDONGROUP.COM 53 STRATEGIC REPORT OUR STAKEHOLDERS

The Board of Breedon Group plc is of the opinion that it has acted in a way which would be likely to promote the success of the company for the benefit of its members and other stakeholders through the decisions it has taken in the year to 31 December 2019.

OUR STAKEHOLDERS HOW WE ENGAGE WHAT ARE THEIR OUR IMPACT IN 2019 MATERIAL ISSUES

Colleagues Colleagues We recognise our dedicated workforce as a key driver of the • Intranet, newsletters, • Physical working conditions • Engaged colleagues through the group-wide staff survey – participation at c 50% value derived from the business. Our colleagues are presentations, email, • Pay and benefits • Over 1,000 colleagues participated in SAYE share option schemes experienced and continuously developed to fulfil their notices and post • Communication • 37 colleagues enrolled and 20 completed higher education programmes potential. All employees are offered a fair benefits and • Employee groups • Opportunities for development • 132 colleagues completed the BMDP and development of the Breedon CDP commenced compensation package relative to their role and level in the and committees organisation. and training • Well embedded apprenticeship schemes for mechanical and electrical engineers as well as a graduate programme • Employee survey • Health and safety • Significant decrease in the number of LTI’s to 1.05 per million hours worked • Development reviews • Medical assessments of nearly 800 operational staff

Customers and Suppliers Customers and Suppliers Breedon works alongside its customers by striving to deliver • Direct engagement • Cost • New purchasing terms of business rolled out in 2019 to customers and new suppliers signed up to the Code of Conduct best customer service and to seek innovative solutions to • Contracts and terms • Product development • Internal guidance distributed highlighting specific modern slavery risks support many of the major projects on which it operates. of business • Service levels • Unique dry ridge fixing system launched We pride ourselves on going the extra mile and recognise • Third party engagement customer loyalty as a key part of our long-term success. • Sustainability commitments • UK Stone Direct launched – direct Welsh slate flooring, paving, rockery stones and aggregate The Company also recognises the huge role its suppliers play • Website • Product quality • Lagan is helping to develop new geosynthetic solutions to the problem of failing ‘bog rampart roads’ in its long-term success. We strive to maximise value from our • Industry associations • Payment practises • Breedon Northern completed resurfacing works on part of the A92 trunk road at Ladybank, Fife, using reprocessed asphalt suppliers and work with them to support the delivery of stripped from the same stretch of road our customers’ needs. • At Connah’s Quay in Wales, piloted the use of recycled plastic as a substitute for bitumen • In RoI, we significantly reduced the need to dispose of waste product by reprocessing around 35,000 tonnes of scalpings and other material within our quarries in County Cork to produce saleable products • In our cement production we use SRF/chipped tyres and other alternative fuels as fossil fuel replacements

Communities Communities We are at the heart of the communities in which we operate • Local liaison meetings • Noise • Dedicated website established to provide information about the Hope cement works and recognise our responsibility to be good, supportive and • Social media • Transportation routes • Sponsorship of Breedon Highland League supporting local communities in the regions of our Highlands and engaged neighbours. Where appropriate, Breedon’s businesses • Community events • Safety Grampian operations have active liaison programmes with the communities in • Creation of community path networks in various locations which they operate, and they seek to take into account the • Letters, emails, notices • Environment interests and concerns of those communities in their • Websites • Communication • Supporting local causes through donations of product and the provision of labour operational activities. • Support for local causes • The Whitemountain Programme has funded 34 community and ecological projects allocating c £1.5 million • All NI sites are now signed up to the MPA Good Neighbour Scheme, with similar schemes being considered elsewhere • At Hope Works c £100,000 given for local activities, sponsorships and donations and communities use of facilities

Investors Investors Our shareholders play an important role in the continued • One-to-one meetings • Governance • Non-executive Chairman appointed following retirement of previous Executive Chairman success of our business. We maintain purposeful and close • Telephone calls • Profitability and return • New independent Board members appointed to strengthen the Board relationships with them. • Site visits and field trips on investment • Member of GCCA – made a commitment in 2019 to the five pillars of its Sustainability Charter • Investor conferences • Sustainability commitments • Recruitment of Group Head of Sustainability commenced • Brokers’ contacts • Dividend policies • Intention to commence a progressive dividend policy from 2021 announced

Regulators/Local Government Regulators/Local Government Developing and sustaining good relationships with the many • Mandatory returns • Emissions and discharges • Successful planning applications received regulators who govern our businesses is central to the success and applications • Climate change • Group Head of Health, Safety and Environment appointed and recruitment announced for Group Head of Sustainability of our business and maintaining our license to operate. • HSE visits • Site restoration • All Whitemountain sites in NI certified to ISO 5001 Energy Management System We are committed to adherence to our legal and regulatory • Notices requirements. • Health and safety • Health and safety training completed for Breedon Southern readymix sites in risk assessment, isolation, contractor • Meetings with regulators • Vehicle management management and hazard spotting • Lagan, Whitemountain’s Alpha landfill site and Kinnegad works all accredited with the ISO 45001 health and safety management standard • SECR reporting requirements adopted one year early

54 BREEDON GROUP ANNUAL REPORT 2019 STRATEGIC REPORT STRATEGIC The Board is committed to and actively encourages effective relationships and communication with the Group’s stakeholders so that a greater understanding of each others needs may be realised. The Board believes that by taking into account stakeholder interests, this in turn will help maximise value for the Group and the continued long-term success of Breedon.

OUR STAKEHOLDERS HOW WE ENGAGE WHAT ARE THEIR OUR IMPACT IN 2019 MATERIAL ISSUES

Colleagues Colleagues We recognise our dedicated workforce as a key driver of the • Intranet, newsletters, • Physical working conditions • Engaged colleagues through the group-wide staff survey – participation at c 50% value derived from the business. Our colleagues are presentations, email, • Pay and benefits • Over 1,000 colleagues participated in SAYE share option schemes experienced and continuously developed to fulfil their notices and post • Communication • 37 colleagues enrolled and 20 completed higher education programmes potential. All employees are offered a fair benefits and • Employee groups • Opportunities for development • 132 colleagues completed the BMDP and development of the Breedon CDP commenced compensation package relative to their role and level in the and committees organisation. and training • Well embedded apprenticeship schemes for mechanical and electrical engineers as well as a graduate programme • Employee survey • Health and safety • Significant decrease in the number of LTI’s to 1.05 per million hours worked • Development reviews • Medical assessments of nearly 800 operational staff

Customers and Suppliers Customers and Suppliers Breedon works alongside its customers by striving to deliver • Direct engagement • Cost • New purchasing terms of business rolled out in 2019 to customers and new suppliers signed up to the Code of Conduct best customer service and to seek innovative solutions to • Contracts and terms • Product development • Internal guidance distributed highlighting specific modern slavery risks support many of the major projects on which it operates. of business • Service levels • Unique dry ridge fixing system launched We pride ourselves on going the extra mile and recognise • Third party engagement customer loyalty as a key part of our long-term success. • Sustainability commitments • UK Stone Direct launched – direct Welsh slate flooring, paving, rockery stones and aggregate The Company also recognises the huge role its suppliers play • Website • Product quality • Lagan is helping to develop new geosynthetic solutions to the problem of failing ‘bog rampart roads’ in its long-term success. We strive to maximise value from our • Industry associations • Payment practises • Breedon Northern completed resurfacing works on part of the A92 trunk road at Ladybank, Fife, using reprocessed asphalt suppliers and work with them to support the delivery of stripped from the same stretch of road our customers’ needs. • At Connah’s Quay in Wales, piloted the use of recycled plastic as a substitute for bitumen • In RoI, we significantly reduced the need to dispose of waste product by reprocessing around 35,000 tonnes of scalpings and other material within our quarries in County Cork to produce saleable products • In our cement production we use SRF/chipped tyres and other alternative fuels as fossil fuel replacements

Communities Communities We are at the heart of the communities in which we operate • Local liaison meetings • Noise • Dedicated website established to provide information about the Hope cement works and recognise our responsibility to be good, supportive and • Social media • Transportation routes • Sponsorship of Breedon Highland League supporting local communities in the regions of our Highlands and engaged neighbours. Where appropriate, Breedon’s businesses • Community events • Safety Grampian operations have active liaison programmes with the communities in • Creation of community path networks in various locations which they operate, and they seek to take into account the • Letters, emails, notices • Environment interests and concerns of those communities in their • Websites • Communication • Supporting local causes through donations of product and the provision of labour operational activities. • Support for local causes • The Whitemountain Programme has funded 34 community and ecological projects allocating c £1.5 million • All NI sites are now signed up to the MPA Good Neighbour Scheme, with similar schemes being considered elsewhere • At Hope Works c £100,000 given for local activities, sponsorships and donations and communities use of facilities

Investors Investors Our shareholders play an important role in the continued • One-to-one meetings • Governance • Non-executive Chairman appointed following retirement of previous Executive Chairman success of our business. We maintain purposeful and close • Telephone calls • Profitability and return • New independent Board members appointed to strengthen the Board relationships with them. • Site visits and field trips on investment • Member of GCCA – made a commitment in 2019 to the five pillars of its Sustainability Charter • Investor conferences • Sustainability commitments • Recruitment of Group Head of Sustainability commenced • Brokers’ contacts • Dividend policies • Intention to commence a progressive dividend policy from 2021 announced

Regulators/Local Government Regulators/Local Government Developing and sustaining good relationships with the many • Mandatory returns • Emissions and discharges • Successful planning applications received regulators who govern our businesses is central to the success and applications • Climate change • Group Head of Health, Safety and Environment appointed and recruitment announced for Group Head of Sustainability of our business and maintaining our license to operate. • HSE visits • Site restoration • All Whitemountain sites in NI certified to ISO 5001 Energy Management System We are committed to adherence to our legal and regulatory • Notices requirements. • Health and safety • Health and safety training completed for Breedon Southern readymix sites in risk assessment, isolation, contractor • Meetings with regulators • Vehicle management management and hazard spotting • Lagan, Whitemountain’s Alpha landfill site and Kinnegad works all accredited with the ISO 45001 health and safety management standard • SECR reporting requirements adopted one year early

BREEDONGROUP.COM 55 GOVERNANCE

GOVERNANCE REPORT

In the following pages we report on the governance framework and how it drives the long-term success of our business.

Board of Directors 58 Corporate Governance statement 60 Audit Committee report 66 Directors’ Remuneration report 69 Nomination Committee report 77 Directors’ Report 79 Statement of Directors’ Responsibilities 82

Tongland quarry, Kirkcudbright

56 BREEDON GROUP ANNUAL REPORT 2019 GOVERNANCE

BREEDONGROUP.COM 57 GOVERNANCE BOARD OF DIRECTORS

OUR LEADERSHIP Our Board comprises an executive leadership BOARD OF DIRECTORS team with extensive experience of the A Member of the Audit Committee international aggregates industry, supported R Member of the Remuneration Committee by experienced non-executive directors who N Member of the Nomination Committee bring strong governance disciplines and a S Senior Independent Director valuable external perspective to our business.

N Appointed to Board: 2016 Background Independent: No Amit is founder and managing partner of Swordfish Investments, a private equity and venture capital business. He is also Partner Core strengths and experience: at Summix Capital, a strategic land fund and a Partner at Initial • Over 15 years’ experience in corporate finance Capital, a firm that invests in early stage technology companies. and private equity He is Chairman of the Global Relief Initiative, a philanthropic trust Other positions currently held: he founded in 2011. He is a Gold Leaf member at the Aspen • Chairman, Queens Park Rangers Football Club Institute and a William Pitt group member at Chatham House. • Partner, Summix Capital Amit was Executive Chairman of Hope Construction Materials • Director of Brimary Investments Sarl, QPR until it was acquired by Breedon Group in August 2016 when he Holdings Limited, Summix Capital Limited and joined the Board. He was appointed Deputy Chairman in 2018 Global Relief Initiative and Non-executive Chairman in May 2019. • Advisory Board Member, Metro Bank PLC • Member of the External Advisory Council for AMIT BHATIA Internationalisation, Cornell University Non-executive Director, Chairman

Appointed to Board: 2016 Background Core strengths and experience: Pat spent 20 years with Aggregate Industries in various roles • Over 30 years’ experience in the aggregates across their UK and US businesses. He joined them in 1995 and and construction industries in the UK, USA in 1999 was given the opportunity to relocate to Denver as Vice and Middle East President of the Colorado business. At the time of leaving the USA, Pat had responsibilities for the businesses in Nevada, • Former CEO of Aggregate Industries Europe, Colorado, Texas, Oklahoma and the Mid-Atlantic region. He was a subsidiary of LafargeHolcim appointed CEO of Aggregate Industries Europe in April 2014. • Director of Minerals Products Association Pat joined Breedon in January 2016, and was appointed to the Board in March 2016.

PAT WARD Group Chief Executive

Appointed to Board: 2014 Background Core strengths and experience: Rob has over 15 years’ experience in the international building • Over 15 years’ experience in the building materials industry. He qualified as a Chartered Accountant with materials industry, including Hanson PLC and Ernst & Young and subsequently joined Hanson PLC where he HeidelbergCement AG held a number of senior positions including Finance Director Brick Continental Europe, Finance Director Building Products • Qualified Chartered Accountant with UK and Chief Financial Officer Australia and Asia Pacific. M&A experience Following the acquisition of Hanson PLC by HeidelbergCement AG, Rob returned to the UK and joined Drax Group plc as Group Financial Controller. During his time at Drax he also spent a period of time as Head of M&A. Rob joined Breedon and was appointed to the Board in 2014.

ROB WOOD Group Finance Director

58 BREEDON GROUP ANNUAL REPORT 2019 A Appointed to Board: 2018 Background Independent: Yes Prior to co-founding Metric Capital in 2011, Peter was a Managing R Director at Terra Firma, one of Europe’s leading private equity Core strengths and experience: firms. He formerly spent more than 20 years with international law • Senior corporate lawyer with significant N firm Clifford Chance, latterly as Global Managing Partner. Peter is experience in investment markets a Partner in Metric Capital, a Special Situations Fund targeting Other positions currently held: mid-sized companies throughout Europe with approximately • Non-executive Chairman of Augusta Securities

€3 billion of assets currently under management. He was GOVERNANCE • Non-executive Chairman of appointed to the Board in October 2018. Peter will retire prior to Grant Thornton (C.I.) the 2020 AGM. • Non-executive Chairman of Lexington Consultants • Partner of Metric Capital Partners

PETER CORNELL Non-executive Director

A Appointed to Board: 2010 Background Independent: Yes Susie was a Banking and Finance Partner with KPMG Channel R Islands from 1990 until 2001 and Head of Audit at KPMG Channel Core strengths and experience: Islands from 1999. She has served as President of the Guernsey • Chartered Accountant with significant N Society of Chartered and Certified Accountants and as a member experience in the financial services industry S of The States of Guernsey Audit Commission, and is a former Other positions currently held: Commissioner of the Guernsey Financial Services Commission. • Non-executive director of a number of listed She is a non-executive director of a number of listed and unlisted and unlisted companies companies and is a member of the Board of The Association of Investment Companies. Susie was appointed to the Board of Breedon in 2010 and became the Senior Independent Director in January 2012. She was appointed as Chair of the Audit Committee in 2018. Susie will retire prior to the 2020 AGM.

SUSIE FARNON Non-executive Director

A Appointed to Board: 2019 Background Independent: Yes Moni is a non-executive Director of a number of limited R companies, Senior Independent Director and Chair of Core strengths and experience: Remuneration at Investec Bank PLC and Deputy Chair of • Solicitor with significant Board and N Barnardo’s. Moni previously held a number of senior non- Remuneration Committee Chair experience executive positions, including as a Board member of the Solicitors Other positions currently held: Regulation Authority (chairing its Equality, Diversity and Inclusion • Senior Independent Director and Chair of the Committee), Cranfield University, Dairy Crest PLC and Polypipe Remuneration Committee of Investec Bank PLC Group plc where she was also Chair of the Remuneration • Non-executive Chair of Investec Holdings Committee. Until 2017, Moni was Chief Operating Officer of (Ireland) Limited Aistemos Limited, a leading IP data analytics and strategy • Non-executive Chair of Investec Europe Limited company. From 2000 until 2016, Moni was a Partner and Head of the International Banking and Finance Division of Olswang LLP, • Deputy Chair of Barnardo’s before which she held senior positions with Dewey Ballantine LLP and Simmons & Simmons. Moni was appointed to the Board in MONI MANNINGS December 2019 and appointed Chair of the Remuneration Non-executive Director Committee in January 2020.

A Appointed to Board: 2019 Background Independent: Yes Clive has considerable finance experience, having previously been R the Group Finance Director of Spectris PLC, a leading international Core strengths and experience: provider of productivity-enhancing instrumentation and controls, • Chartered Accountant and member of the N Chief Financial Officer and Executive Vice President for business Chartered Institute of Tax with significant support at Borealis, a leading provider of polyolefins, Group finance experience in a variety of industries Finance Director at Thorn Lighting Group and held a variety of Other positions currently held: finance roles at Black & Decker. In 2019, Clive retired from the • Non-executive Director Board of Spectris PLC and as a non-executive director of Spirax discoverIE Group PLC Sarco Engineering plc, the FTSE 100 engineering company, where he was Chair of the Audit Committee and Senior Independent Director. Clive is currently a non-executive director and chair of the Audit and Risk Committee for discoverIE Group plc, an international group of businesses which designs, manufactures and supplies electronic components. Clive was appointed to the CLIVE WATSON Board in September 2019 and it is expected that he will become Non-executive Director Chairman of the Audit Committee following Susie Farnon’s retirement from the Board.

BREEDONGROUP.COM 59 GOVERNANCE CORPORATE GOVERNANCE STATEMENT

DELIVER GROWTH PRINCIPLE 1 Establish a strategy and business model which promote long-term value for shareholders The Board has established the Group’s strategy and regularly reviews it. The Board have defined six strategic pillars which form the foundation of the Group strategy and which will be of focus in 2020. These are: a clear purpose and the right culture; robust governance; a commitment to sustainability and social responsibility; long-term growth markets; conservative financial management; and a well-utilised, growing asset base. The Board ensures that the Group communicates its Amit Bhatia strategy to investors, colleagues and other Chairman stakeholders using means appropriate for each group. We have a fully vertically-integrated business model 2019 has seen a strengthening of the Board which gives us significant economies of scale, a high level of self-sufficiency and tight control over our of directors, which continues to develop costs. The objective of our business model is to extract to align and support the strategic growth maximum value from every tonne of aggregates we of the Group. The directors recognise the quarry and every tonne of cement we produce, value of strong and effective corporate through the efficient manufacture and sale of a wide governance and are fully accountable to the range of downstream products and associated services. Group’s stakeholders including colleagues, The Group’s Business Model and Strategy, together shareholders, customers and suppliers. with the key challenges faced by the Group in their The Board is responsible for ensuring that commercial execution, are described in more detail on pages 16 risks and financing needs are properly considered, the and 17, and 20 and 21. obligations of a public company are adhered to and all decisions are made objectively in the interest of the Group and its stakeholders. The executive directors of PRINCIPLE 2 the board, through their operational roles, will Seek to understand and meet shareholder continue to have close involvement with the operations of the business. needs and expectations The Board adopted the QCA Corporate Governance The Board is committed to and actively encourages Code (‘QCA code’) with effect from 1 January 2019. effective relationships and communication with the In this section of our report we have broadly set out Company’s shareholders. our approach to governance and how it complies with Dialogue with shareholders the QCA Code and have provided further information Breedon is committed to maintaining good on how the Board and its Committees operate. communications with its shareholders. Members of the The Board believes that it complies with all of the Board have face-to-face meetings with representatives principles of the QCA code. of institutional shareholders and potential investors so The Company will provide annual updates on its to enable a greater understanding primarily of the compliance with the QCA Code in its future annual business but mainly the Board’s strategy for the reports, which will also be published on its website. continued long-term success of the business. Through these meetings, the Board is able to gain feedback to have a clear understanding of the views of the major shareholders, and the needs of potential shareholders so that these can be considered. During 2019 over 80 meetings were held with shareholders, ranging from telephone calls, one-to-one meetings and site visits. This equates in the period to the Executive team having contact with shareholders

60 BREEDON GROUP ANNUAL REPORT 2019 holding over 70% of the Group. The Group Chief PRINCIPLE 4 Executive plays an important role in ensuring that all views of shareholders are communicated to the Board Embed effective risk management, as a whole, and we believe that this has been considering both opportunities and successful in ensuring that all directors have a clear threats, throughout the organisation understanding of major shareholders. The Board recognises its responsibility for determining The Executive Directors are primarily responsible for GOVERNANCE the nature and extent of the principal risks it is willing shareholder liaison and may be contacted via to take in achieving its strategic objectives and [email protected]. Any individual can priorities and maintains sound risk management and subscribe for the Group’s regulatory news and internal control systems. The Board reviews and information via www.breedongroup.com. approves the Group’s risk appetite on an annual basis. Use of general meetings Risk management processes are embedded All shareholders are actively encouraged to participate throughout the Group and assist management in in the Company’s AGM. At general meetings the identifying and understanding the risk that they face Company proposes separate resolutions on each in delivering business objectives and the key controls substantially separate issue. The Company provides that they have in place to manage those risks. shareholders with the opportunity to appoint a proxy. By identifying and managing those existing and In addition, proxy votes are counted, and the results emerging risks, the Board can focus on long-term announced after any vote on a show of hands. business opportunities. The Chair of the Remuneration, Audit and Nomination The Board is responsible for the Group’s systems Committees, the Senior Independent Director, and all of risk management and internal control, and for other directors are available to answer questions at reviewing their effectiveness. The Audit Committee each AGM of the Company. reviews the suitability and effectiveness of risk The Company arranges that notice of the AGM and management processes and controls on behalf related papers are sent to shareholders at least of the Board. 20 working days before the meeting, giving time for The Group Finance Director provides a twice-yearly all shareholders to consider resolutions properly. update to the Board on the key risks and controls within the Group, highlighting the roles and responsibilities of key management in managing PRINCIPLE 3 those risks. Take into account wider stakeholder The Group Controls Manager works with the and social responsibilities and their businesses to identify and assess the key risks and controls and reports them to the Group Finance implications for long-term success Director. In addition they facilitate the embedding and Breedon recognises the importance of balancing monitoring of the Board’s agreed risk management the interests of its key stakeholders – employees, process within the business, under the direction of the customers, investors, suppliers and the wider Group Finance Director. communities in which it operates. Engaging with our Directors and senior managers ensure that the risk stakeholders strengthens our relationships and helps management framework is implemented effectively us make better business decisions to deliver on within their respective business areas. Their key our commitments. responsibilities include ensuring an effective risk The way in which the Board engages and takes into culture is in place, with risk management embedded in account stakeholder issues, together with the resultant the business. impact is detailed on pages 44 to 53 of the Resources The Group’s principal risks are: acquisitions; and Relationships section of the Strategic Report. competition and margins; environment and climate change; financing, health and safety; IT and cyber security; legal and regulatory; liquidity and currency; people; and market conditions. Further details of the Group’s approach to risk management, together with a full description of the key risks faced by the Group, are set out in pages 24 to 27.

BREEDONGROUP.COM 61 GOVERNANCE CORPORATE GOVERNANCE STATEMENT CONTINUED

MAINTAIN A DYNAMIC Details of the directors’ attendance at Board meetings MANAGEMENT FRAMEWORK are set out below: PRINCIPLE 5 MEETING ATTENDANCE Meetings Eligible Maintain the board as a well-functioning, attended to attend balanced team led by the chair Amit Bhatia 7 7 The Chairman sets the Board’s agenda and the Board is provided with clear, regular and timely information Pat Ward 7 7 on the financial performance of the businesses within the Group, and of the Group as a whole, together with Rob Wood 7 7 other trading reports, contract performance and market reports and data, including reports on Peter Cornell 7 7 personnel-related matters such as health and safety Susie Farnon 6 7 and environmental issues. The Board has approved a schedule of matters reserved for the Board. Moni Mannings1 1 1 The Chairman encourages and facilitates the contribution of each of the directors to ensure that no Clive Watson2 3 3 one individual can dominate its proceedings. All directors are encouraged to use their independent Peter Tom CBE3 3 3 judgement and to challenge all matters, whether strategic or operational. David Williams4 7 7 The current Board comprises the Non-executive 1 Appointed 1 December 2019 Chairman, two executive directors (Group Chief 2 Appointed 1 September 2019 Executive and Group Finance Director), four 3 Retired 29 May 2019 independent non-executive directors (being Susie 4 Retired 31 December 2019 Farnon, who is the Senior Independent Director, Peter Cornell, Clive Watson who was appointed as a non- executive director with effect from 1 September 2019, PRINCIPLE 6 and Moni Mannings who was appointed as a non- executive director with effect from 1 December 2019). Ensure that between them the directors Peter Tom, Executive Chairman and David Williams a have the necessary up-to-date experience, non-executive director who was not considered to be skills and capabilities independent, left the Board during 2019. The Board has established Audit, Remuneration and The composition and performance of the Board, and Nomination committees to support the Board in the the skills and experience of each director are regularly performance of its duties, and it believes that the evaluated, to ensure that they best fit the evolution of members of those committees have the appropriate the Group’s business. The Nomination Committee skills and knowledge to perform the functions regularly reviews the succession plan to ensure that delegated to them. when seeking to recommend new members to the Board, consideration of a range of relevant matters The time commitment expected from directors is set including the diversity of its composition is given. out in their service agreements or letters of appointment (as appropriate). Executive directors are The Board considers that each of the directors brings required to work such hours as may be necessary for a senior level of experience and judgement to bear on the proper performance of their duties. The Board has issues of operations, finance, strategy, performance, agreed that each executive director may also take on resources (including key appointments) and standards one non-executive directorship of a public company of conduct. All directors are given regular access to outside of the Breedon Group. the Group’s operations and personnel as and when required. All non-executive directors have a wealth Non-executive directors are expected to devote such and breadth of experience gained through their time as is necessary for the proper performance of directorships on other listed Boards. The individual their duties, including in preparation for and biographical details of directors including the skills and attendance at Board, committee and shareholder experience they bring to the Board can be found on meetings. When accepting their appointment, each pages 58 and 59. non-executive director confirms that they can allocate sufficient time to meet the expectations of their role. The roles of Non-executive Chairman and Group Chief Executive are not exercised by the same individual and The Board is satisfied that it has a suitable balance the division of responsibility is clear and set out on the between independence on the one hand, and Group’s website. knowledge of the Group on the other, to enable it to discharge its duties and responsibilities effectively. The primary role of the Chairman is to ensure the The Board considers all of its non-executive directors, Board is effective in setting and implementing the with the exception of the Non-executive Chairman, to Group’s direction and strategy and the operation of be independent in character and judgement. the Company’s governance structures. He is also responsible for leadership of the Board and ensuring

62 BREEDON GROUP ANNUAL REPORT 2019 that the Group maintains an appropriate level of PRINCIPLE 7 dialogue with its shareholders. The role of the Chief Executive is to oversee the operational management of Evaluate board performance based on the Group’s businesses, and the role of the Senior clear and relevant objectives, seeking Independent Director is to act as a sounding board for continuous improvement the Chairman and other members of the Board and to The Board regularly reviews its own effectiveness and be an alternative point of access for shareholders for GOVERNANCE matters that they do not wish to raise through considers whether it comprises the appropriate skills other channels. to meet the needs of the business. The Chairman is in regular contact with each member of the Board to The Board considers and reviews the requirement for ensure that any concerns that any of them may have continued professional development and each director are identified and can be acted upon. is encouraged to reflect on their own individual needs. The Board seeks to ensure that their awareness of The Board aims to carry out an externally facilitated developments in corporate governance and the Board Effectiveness Review every three years. regulatory framework is current, as well as remaining The most recent review, carried out in 2017, consisted knowledgeable of any industry-specific updates. of each director participating in a one-to-one interview The Group Services Director, the Group’s Nominated with the provider and the output of those interviews Adviser and other external advisers serve to then being compiled in a report for consideration by strengthen this development by providing guidance the Board as a whole. While the review covered the and updates as required. whole spectrum of the Board’s activities, it had a particular focus on four key areas which the directors Breedon has a robust succession plan which has seen had identified in advance as being worthy of additional the appointment of the Non-executive Chairman and attention. Those areas related to the Board’s approach two new independent non-executive directors in 2019. to strategy, succession planning, risk and employee The Board recognises that following the departure of management and development. Peter Tom and David Williams during 2019, there remains one non-executive director, Susie Farnon who The review concluded that the Breedon Group Board has served on the Board for more than nine years, was highly effective. It comprises well-experienced however Susie will be retiring prior to the 2020 AGM. individuals, has good reporting, little bureaucracy, Peter Cornell will also retire from the Board prior to conducts well controlled and open meetings and the AGM. benefits from a high level of challenge. There is a high degree of trust amongst the directors and between All directors stand for re-election by shareholders the directors and senior management. every year, notwithstanding that the Articles of Association of the Company require only one third of The Board will undertake an externally facilitated them to do so annually. review in 2020, which will follow recommendations from the ICSA: The Governance Institute & Department Following the recommendation of the Nomination for Business, Energy and Industrial Strategy Quality Committee in February 2020, it is anticipated that and Effectiveness of Board Evaluations Review which Carol Hui will be appointed to the Board in will allow the Board to understand its own spring 2020. effectiveness, the impact it has had since the last review and how it may make further enhancements to its own performance. The review will be set in context of the changes made to the composition of the Board in 2019 to ensure that it continues to function in an efficient and productive manner.

BREEDONGROUP.COM 63 GOVERNANCE CORPORATE GOVERNANCE STATEMENT CONTINUED

PRINCIPLE 8 PRINCIPLE 9 Promote a corporate culture that is based Maintain governance structures and on ethical values and behaviours processes that are fit for purpose All Group employees are expected to maintain an and support good decision-making by appropriate standard of conduct in all of their the Board activities, and the directors seek to set the tone for The Board meets at least six times per year (it met such behaviour through their own actions. seven times in 2019) in accordance with its scheduled To promote a common culture across the organisation, meeting calendar. The Board receives appropriate and Breedon has defined a clear purpose and set of values timely information prior to each meeting, a formal that will support the successful delivery of the Breedon agenda is produced, and these papers are distributed strategy. Led by the Board and Executive Committee, in good time before each meeting. At the start of each the Group is embedding the purpose “to make a meeting, the Board considers any Directors’ Conflicts material difference to the lives of our colleagues, of Interest. customers and communities” to create a work place The Board is responsible for the long-term success of where people feel safe, proud and motivated to do the Group. It is responsible for overall Group strategy, their best. The values at the heart of our business: approval of annual budgets, annual and interim results, keep it simple; make it happen; show you care; and dividend policies and approval of major investments, strive to improve, will drive the performance of the including long-term contracts, acquisitions or large business, motivating and engaging employees, capital items. However, the Board recognises that building customer loyalty and strengthening our governance is not just about compliance. The Board relationship with local communities. strives for good and effective governance, with The Group has established a robust Compliance informed and transparent decisions being made Framework to regulate its activities in respect of inter contributing to the delivery of the Group strategy. alia Business Conduct, Modern Slavery, Competition The Chairman is responsible for maintaining strategic Law Compliance, Anti-Bribery and Corruption, Data focus and direction and the Group Chief Executive is Protection, Whistleblowing, Non-facilitation of Tax responsible for implementing the strategy and Evasion and Conduct of Suppliers and closely monitors overseeing the management of the Group through the compliance with these. executive and management teams. Through our Visible Felt Leadership programme, There is a formal schedule of matters reserved to the our leaders can ensure that there is a culture of safe Board which includes Strategy and Management, behaviour through interactions which allow Structure and Capital, Financial Reporting and opportunities for the exchange of views in an open Controls, Internal Contracts, Contracts, and honest environment. Communication, Board Membership and other appointments, Remuneration, Governance and Corporate Policies. The Board is supported by the Audit, Remuneration and Nomination committees. Terms of reference of each board committee, and the schedule of matters reserved to the Board are set out on the Group’s website at www.breedongroup.com. The activities of the Audit, Remuneration and Nomination committees during 2019 are described on pages 66 to 78. The executive and management teams, who are overseen by the Group Chief Executive with input from the individual business managing directors, are responsible for day‑to-day management of the Group’s business and its overall trading, operational and financial performance.

64 BREEDON GROUP ANNUAL REPORT 2019 BUILD TRUST PRINCIPLE 10 Communicate how the company is governed and is performing by

maintaining a dialogue with shareholders GOVERNANCE and other relevant stakeholders Breedon is committed to maintaining good communications with its shareholders, and it has put in place appropriate processes and structures to allow that to happen. The Group communicates with its shareholders through the Annual Report and Accounts, trading announcements, the AGM and in the manner set out in the commentary above in relation to Principle 2. It maintains a dedicated email address which current or potential investors can use in order to communicate with the Group’s investor relations team ([email protected]). The Group announces the result of the proxy votes cast for each resolution proposed at each general meeting of the Company immediately after such meeting, and a range of corporate information (including all historical annual reports and notices of meetings, announcements and presentations) is made available on the Group’s website at www.breedongroup.com. The Board receives regular updates on the views of shareholders through reports and notes from its brokers and other Board members. Analysts notes are also reviewed and discussions held with the Company’s brokers to maintain a broad understanding of varying investor views.

Amit Bhatia Non-executive Chairman 11 March 2020

BREEDONGROUP.COM 65 GOVERNANCE AUDIT COMMITTEE REPORT

The Audit Committee maintained its focus on ensuring high standards of financial governance during the year. MEETING ATTENDANCE Meetings Eligible attended to attend Susie Farnon, 3 3 Committee Chairman Peter Cornell, 3 3 Independent Non-executive Director Clive Watson, 1 1 Independent Non-executive Director* * appointed 1 September 2019 The role of the Audit Committee is to monitor the integrity of the Group’s Financial Statements and to ensure that the interests of shareholders are properly protected in relation to financial reporting and internal control. The Audit Committee monitors and reviews the Susie Farnon effectiveness of the internal financial controls, the Chair, Audit Committee internal control and risk management systems and the compliance environment operating within the Group. KEY ACTIVITIES CARRIED OUT IN THE YEAR: This includes the Group’s whistleblowing During the year, the Committee met formally three arrangements, which the Committee ensures allows for times and discussed the following: proportionate and independent investigation alongside appropriate follow up action of concerns raised. • External audit tender process The Audit Committee makes recommendations to the • Audit planning Board in respect of the appointment of the external auditor, reviews and monitors their independence and • Auditor’s fees and independence objectivity and approves their remuneration. The Audit • Auditor’s effectiveness Committee consults with the external auditor on the scope of their work and reviews all major points arising • Interim report and annual report from the audit. • Internal audit The Audit Committee was chaired by myself throughout the year, and comprised Peter Cornell and • Internal controls and risk management Clive Watson (who was appointed to the Board and • Taxation the Audit Committee on 1 September 2019). The Committee has relevant financial experience at a • Going concern and viability statement senior level as set out in their biographies on pages 58 • Significant accounting matters and 59. The Audit Committee met three times formally in 2019 and also held informal discussions with the • Plans for transition to new accounting standards external auditor as appropriate. • Whistleblowing The principal activities of the Audit Committee in • The Audit Committee’s terms of reference respect of the year ended 31 December 2019, and the manner in which it discharged its responsibilities, were as follows:

66 BREEDON GROUP ANNUAL REPORT 2019 FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING MATTERS The Audit Committee reviewed and agreed the During the year, the Audit Committee considered key external auditor’s strategy and approach in advance of accounting issues, judgements and disclosures in their audit for the year ended 31 December 2019, and relation to the Group’s Financial Statements. The most reviewed reports on the outcome of the audit. significant of which was impairment of goodwill. The Audit Committee also reviewed the 2019 The Audit Committee also received communications Preliminary Results Announcement, the 2019 Annual from management and the external auditor on a GOVERNANCE Report, the 2019 Interim Results Announcement and number of other accounting matters, including the the 2019 Interim Report. adoption of IFRS 16 – Leases in the year, the valuation of mineral reserves and resources, revenue recognition, restoration provisions, and the possible impact of Brexit on the Group.

Area of Judgement Detail Action taken

IMPAIRMENT OF GOODWILL The Group has £410.1 million The recoverable amounts for Cash flows for each segment were calculated over of goodwill which it has each segment to which a 30-year period, starting with the 2020 budget recognised on acquisitions goodwill has been allocated approved by the Board, followed by forecast three and which represents the are calculated by year plan results for 2021 and 2022 and excess of the fair value of the determining the value in use subsequently by a longer term growth assumption consideration paid over the of each segment which is of between 1.5 and 2.5 per cent for the remaining share of identifiable assets based on the net present 27 years. acquired and liabilities value of projected cash flows. These cash flows were adjusted for the impact of assumed. The most significant working capital and capital expenditure, before Goodwill is not amortised but judgements are in setting being discounted at a pre-tax discount rate of is reviewed for impairment the assumptions for the between 9.4 and 10.1 per cent which was calculated on an annual basis, or more calculation of the value in by an external expert. frequently if there are use, which includes the The recoverable amounts of each segment show indications that the goodwill discount rate applied to significant headroom compared to their carrying may be impaired. This testing cash flows, forecast financial value when reasonably possible changes are made is performed at the lowest performance and the to key assumptions. level at which management longer-term rate of growth. The Audit Committee discussed the assumptions monitor goodwill, being the Details of the assumptions underlying the cash flow projections with both groups of CGUs which used are provided in note 9 management and the external auditor, considered comprise the Group’s three to the Financial Statements. the appropriateness of the key assumptions and the operating segments. adequacy of the disclosure provided in note 9 of the Financial Statements. They also considered the additional analysis around the possible impact of Brexit on impairment calculations which was prepared by management. Following discussion on headroom and sensitivity, the Committee was satisfied that no impairment of goodwill was necessary.

BREEDONGROUP.COM 67 GOVERNANCE AUDIT COMMITTEE REPORT CONTINUED

GOING CONCERN AND VIABILITY The Audit Committee discusses and agrees the scope The Audit Committee reviews supporting papers from of the audit plan for the full year with the auditor. management to support the Going Concern and The external auditor reports on the control Viability statements set out on page 81. This includes environment in the Group, key accounting matters and sensitivity analysis over key assumptions. mandatory communications. The Audit Committee Following this review, the Committee recommended to also receives and reviews a report from the external the Board the approval of both statements. auditor setting out to its satisfaction how its independence and objectivity is safeguarded when EXTERNAL AUDIT TENDER providing non-audit services. KPMG LLP either directly or via KPMG Channel Islands The value of non-audit services provided by KPMG in Limited has acted as auditor since the formation of the respect of the year ending 31 December 2019 Group in 2008. Given the length of tenure, a amounted to nil (2018: £16,000, principally in respect competitive tender process for the appointment of the of life assurance and pension advisory services). external auditor was undertaken by the Audit During the year there were no circumstances where Committee in 2019 on behalf of the Board. KPMG was engaged to provide services prohibited by A selection panel was formed comprising the the FRC’s 2016 ethical standard or which might have members of the Audit Committee alongside the Group led to a conflict of interest. Finance Director and Group Financial Controller. The Audit Committee continues to be satisfied with Five audit firms were initially approached, of which the work of KPMG and that they continue to remain three were shortlisted, being KPMG LLP as the objective and independent. incumbent as well as a candidate from both inside and Following the conclusion of the 2019 audit, the lead outside the ‘big four’. audit partner, Craig Parkin has served two years of a Each shortlisted firm was sent a Request for Proposal, maximum tenure of five years before rotating to setting out details of the process, timetable and assure independence. evaluation criteria. The evaluation criteria included, but were not limited to, the experience and personal INTERNAL AUDIT credentials of the audit team, their understanding of The Group does not have a formal internal audit the business and the industry, approach to quality function. However, the Group Controls Manager assurance and value for money. performs a number of activities that an internal audit A comprehensive data room was set up to provide function would perform. The Audit Committee receive each firm with sufficient information to produce a regular formal updates covering planned activities, detailed proposal, with additional meetings being held findings of reviews performed and updates on agreed with both the Audit Committee and senior members of actions from previous reviews. management throughout the process. The Audit Committee considers this is appropriate All three firms presented their proposal for the audit in given the close involvement of the executive directors November 2019, followed by a question and answer and senior management on a day-to-day basis, the session. After careful consideration of the merits of location of operations in the UK and RoI and the work each proposal, the Audit Committee (having consulted of the Group Controls Manager. However, the need for with management) recommended to the Board two an internal audit function will be kept under review by choices for external auditor, with a reasoned the Audit Committee on behalf of the Board. preference that KPMG LLP be retained as external auditor, albeit with an increased focus on the most WHISTLEBLOWING effective use of data and analytics within the audit. The Group has adopted a whistleblowing policy which The Board accepted the recommendation of the gives its employees, or indeed any other third party, Audit Committee, and shareholders will be asked to the means to raise concerns in confidence and (if they approve the reappointment of KPMG LLP as auditor wish) anonymously. The Audit Committee reviews at the AGM. reports on notifications received and ensures that arrangements are in place for the proportionate and EXTERNAL AUDITOR independent investigation of such matters and for The external auditor, KPMG LLP, attends meetings of follow up action. the Audit Committee. The Audit Committee has the opportunity to meet with the external auditor without the executive directors being present to provide a forum to raise any matters of concern in confidence.

Susie Farnon Chair, Audit Committee 11 March 2020

68 BREEDON GROUP ANNUAL REPORT 2019 DIRECTORS’ REMUNERATION REPORT

The Group needs to ensure that its pay and benefits practices are competitive but consistent with its circumstances. 2019 BUSINESS PERFORMANCE 2019 was an extremely busy year for the Group, with the focus on ongoing performance, the first full year

contribution from Lagan and the delivery of the GOVERNANCE resulting synergies. The acquisition of Roadway was completed in October, with the joint venture with Brett in London (Capital Concrete) completing in December. In terms of remuneration, our success in 2020 led to an annual cash bonus outcome towards the higher-end of the scale, but an anticipated PSP vesting at just below two-thirds of maximum. As reported in the Statement from the Chair, Group Chief Executive’s review on pages 8 to 15, and the Group Finance Director’s review on pages 28 to 32, Moni Mannings the Group continued to perform well, driving positive Chair, Remuneration Committee results in a tough trading environment for the sector. KEY ACTIVITIES CARRIED OUT IN THE YEAR: DECISIONS IN RELATION TO DIRECTORS’ During the year, the Remuneration Committee met REMUNERATION IN 2019 formally five times and discussed the following: A benchmarking exercise was undertaken in 2019 in • Executive salaries order to set the pay of the new Chairman following • Annual bonuses Peter Tom’s retirement. The base salaries set for 2019 were as follows, with executive salaries increasing in • Long-term incentives line with the wider workforce: • Chairman’s fee • £170,000 for the Non-executive Chairman, • Pay and benefit levels across the Group • £615,000 for the Group Chief Executive, and • The Directors’ Remuneration report • £410,000 for the Group Finance Director. The bonuses earned in the year by the directors reflect MEETING ATTENDANCE the performance of the business. Further information Meetings Eligible is given on page 75. attended to attend REMUNERATION COMMITTEE David Williams, 5 5 Committee Chairman The responsibility for establishing the Group’s overall Remuneration Policy lies with the Board. The role of Peter Cornell, 5 5 the Remuneration Committee is broadly to determine Independent Non-executive Director the terms of employment for the executive directors Susie Farnon, and senior management of the Group within the 5 5 Independent Non-executive Director framework agreed by the Board. The Committee works within agreed terms of reference to make DEAR SHAREHOLDER recommendations to the Board on that framework. I am pleased to present the Directors’ Remuneration The terms of reference for the Committee are available report for the year ended 31 December 2019. on the Group’s website. Having been appointed as non-executive director on The Remuneration Committee was chaired by David 1 December 2019 and Chair of the Remuneration Williams throughout the year and his co-members Committee on 1 January 2020, I can report that all were Susie Farnon and Peter Cornell. The Committee aspects of executive remuneration are in order. I would met formally five times in 2019. David retired on like to place on record my thanks to the outgoing Chair of the Committee for his work over many years 31 December 2019 after which date I became Chair. during which Breedon has grown rapidly and executive LOOKING FORWARD TO 2020 remuneration has been at the forefront of driving this growth and success of the business. During 2020, During 2020, as I mentioned earlier in my report, I intend to review all aspects of our remuneration I intend to conduct a full review of policy, with an policy together with our advisers, to ensure it is open engagement with shareholders thereafter. appropriate for Breedon as we enter the next phase of In accordance with Breedon’s usual salary review growth and development. Once this review is timetable for the Group as a whole, executive complete, towards the summer I intend to consult with directors’ salaries have been reviewed and increases our major shareholders to ensure we have alignment. will be implemented with effect from 1 April 2020 in The Report is set out in two sections: the ‘Policy line with those applied to the wider workforce. Report’ summarises our current Remuneration Policy; These salaries will be reported in the 2020 Directors’ and the ‘Annual Report on Remuneration’ shows the Remuneration report. A summary of our approach to amounts earned by directors in 2019, and how we other elements of executive remuneration is set out propose to apply the Policy. on pages 70 to 76.

BREEDONGROUP.COM 69 GOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED

POLICY REPORT

BASE SALARY To provide a competitive base salary reflective of the particular skills and experience of an individual.

Operation Maximum opportunity Performance conditions Reviewed annually or on a significant Whilst there is no maximum salary, None. change of responsibilities. increases will normally be broadly in Salaries are determined by line with the range of salary increases reference to the skills and personal awarded (in percentage of salary performance of the individual. terms) to the wider workforce. Salary increases above this level The Remuneration Committee also may be awarded to take into takes into account external market account individual circumstances, data and pay and employment including a change in the scope or conditions elsewhere in the Group responsibilities of the role, a change when considering increases to base in market practice, a change in the salary levels. size or complexity of the business or to reflect development and performance in role.

ANNUAL CASH BONUS To incentivise the delivery of annual financial, strategic and safety objectives.

Operation Maximum opportunity Performance conditions Executive directors may participate For executive directors, the Performance is assessed against in the annual bonus scheme. maximum opportunity is 125 per financial targets. A moderator may Performance measures and targets cent of salary. This level of incentive also be applied to increase or decrease are set by the Remuneration opportunity reflects the Committee’s the outturn dependent on average Committee at the start of the desire to retain a high proportion of capital employed performance against financial year or later if appropriate remuneration on variable pay. targets, subject to the 125 per cent of and, based on performance, bonuses Bonuses are not pensionable. salary limit. are paid in cash shortly after the The bonus may be reduced or completion of the audit of the eliminated if safety performance annual results. or accident records reach unacceptable levels.

PERFORMANCE SHARE PLANS (PSPs) To drive superior performance of the Group and delivery of the Group’s long-term objectives, aid retention and align directors’ interests with those of the Company’s shareholders.

Operation Maximum opportunity Performance conditions Annual share-based awards with a In line with best and market practice, The vesting of awards is subject to three-year performance period. it is currently intended that rolling the satisfaction of performance annual awards will be made. conditions, typically measured over The maximum award limit in any a period of at least three years. financial year under the plan rules is Performance conditions, and their 250 per cent of base salary. weightings where there is more than one metric, are reviewed annually to In 2019 awards with a face value of maintain appropriateness and 150 per cent of salary were made to relevance. Awards are based on the Executive Chairman and Group financial measures which may include, Chief Executive, and 125 per cent to but are not limited to, EPS. the Group Finance Director. It is expected that a similar level of Awards will usually vest between award will be made in 2020, for the 20 per cent and 100 per cent for Group Chief Executive and Group performance between ‘threshold’ Finance Director. (the lowest level of performance which results in any level of vesting) and ‘maximum’ performance.

70 BREEDON GROUP ANNUAL REPORT 2019 PENSION To aid recruitment and retention by allowing the directors to make provision for long-term retirement benefits comparable with similar roles in similar companies. GOVERNANCE Operation Maximum opportunity Performance conditions A salary supplement equivalent to The Group Chief Executive and the None. the contribution that would Group Finance Director receive a otherwise be made to a defined salary supplement of 17.5 per cent of contribution pension plan. their base salary in lieu of a pension contribution.

OTHER BENEFITS To provide market-competitive, cost-effective benefits.

Operation Maximum opportunity Performance conditions Other benefits may include private Based on costs determined by None. medical insurance, car allowance, third-party providers. executive medical screening and ShareSave contribution limits and the reimbursement of certain the ShareSave option exercise travel costs. price are set as permitted by the The Company also operates a UK applicable tax legislation and ShareSave scheme on an annual apply in the same way to all basis. This scheme is open to all qualifying employees. employees of the Group who have completed the requisite length of service at the launch of each invitation to participate.

APPROACH TO PERFORMANCE MEASURES The Committee’s approach to the setting of performance measures for the annual bonus and PSPs is to select measures that are aligned with the Group’s key performance indicators and the interests of shareholders. Targets are set at levels which require stretching performance to be achieved for maximum payout, but without encouraging excessive risk-taking. When setting targets, the Committee considers a number of reference points, including the Company’s own plans, external expectations and the economic environment. The annual bonus targets for 2019 were set by reference to Underlying EBIT, which tracks improvements in the profitability of the Group. Health and safety performance is fundamental to the Group. We are committed to maintaining a safe environment at all of our operations and have set ourselves the goal of achieving Zero Harm across the entire business. To reflect this, the annual bonus may be reduced or eliminated if safety performance or accident records reach unacceptable levels. The current performance measure for the PSPs is based on EPS, reflecting our focus on profitability and the delivery of value to shareholders, whilst maintaining simplicity and line-of-sight for the participants. The Committee retains the ability to adjust or set different performance measures or targets if events occur (such as a change in strategy, a material acquisition and/or disposal of a Group business, or a change in prevailing market conditions) which cause the Committee to consider that the measures are no longer appropriate and that an amendment is required to enable them to achieve their original purpose. The PSPs are operated in accordance with their terms, which includes the ability of the Committee to adjust awards in the event of a variation of share capital.

BREEDONGROUP.COM 71 GOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED

NON-EXECUTIVE DIRECTORS

NON-EXECUTIVE DIRECTORS’ REMUNERATION To provide market-competitive, cost-effective benefits.

Operation Non-executive directors each receive a basic fee for holding the office of non-executive director, and may also receive an additional fee for further responsibilities (such as holding the office of Senior Independent Director or chairing a Board committee). Fees are set by the Board as a whole, taking into account market rates and the required time commitment. Non-executive directors do not participate in any incentive scheme, share scheme or pension arrangement, but may be eligible to receive benefits such as the use of secretarial support, travel costs or other benefits that may be appropriate.

SERVICE AGREEMENTS/LETTERS OF APPOINTMENT OF THE DIRECTORS AND LOSS OF OFFICE Each of the directors has a service agreement or letter of appointment with the Company as follows:

Notice Period

Director Date of contract/letter of appointment From the Director From the Company Amit Bhatia 1 August 2016 N/A N/A Pat Ward 20 January 2016 12 months 12 months Rob Wood 27 February 2014 12 months 12 months Peter Cornell 31 August 2018 N/A N/A Susie Farnon 25 October 2010 N/A N/A Moni Mannings1 29 October 2019 N/A N/A Clive Watson2 24 July 2019 N/A N/A Peter Tom3 5 June 20084 12 months 12 months David Williams5 5 June 2008 N/A N/A

1 Moni Mannings appointed to the Board on 1 December 2019 2 Clive Watson appointed to the Board on 1 September 2019 3 Peter Tom retired from the Board on 29 May 2019 4 The service agreement was entered into with Rise Rocks Limited for the purposes of procuring the services of Peter Tom as a consultant to the Company in the role of Executive Chairman. 5 David Williams retired from the Board on 31 December 2019

72 BREEDON GROUP ANNUAL REPORT 2019 The Board’s overriding approach to payments for loss of office is to act in shareholders’ interests. The principles on which payments for loss of office will be approached are set out below.

Notice periods and The maximum notice period for executive directors is 12 months. The Committee retains payments in lieu of notice the right to terminate an executive director’s service agreement by making a payment in

lieu of notice, consisting of salary, cost of benefits and loss of pension provision for the GOVERNANCE notice period (or the unexpired portion of it). It is the Company’s policy to have regard to the executive director’s duty to mitigate his/her loss in respect of those contractual rights that he/she would otherwise be entitled to receive.

Annual bonus The payment of bonus for the year in which the executive director leaves is determined by the Committee, taking into consideration their contribution up to the leaving date and normal pro-rating for time in service during the year.

PSP PSP awards will usually lapse on cessation of employment. However, if a participant leaves due to death, ill health, injury, retirement with the agreement of the Committee, or any other reason at the discretion of the Committee, his/her award shall either vest on the normal vesting date or at the date of cessation. In either case, the extent of vesting will be determined by reference to the extent the performance conditions are satisfied and, unless the Committee determines otherwise, the proportion of the vesting period that has elapsed.

Other payments Payments may be made in the event of a loss of office under the ShareSave scheme, which is governed by its rules and the applicable legislation and which does not provide discretion in the case of leavers. In appropriate circumstances, other payments may also be made, such as in respect of accrued holiday and outplacement and legal fees.

RECRUITMENT REMUNERATION When appointing a new executive director, the Committee will seek to ensure that his/her remuneration arrangements are in the best interests of the Company, and not more than is appropriate. The Committee will typically determine a new executive director’s remuneration package in line with the policy set out above. However, the Committee retains discretion to award different elements of remuneration in appropriate circumstances, such as: • if an interim appointment is being made to fill a role on a short-term basis, • if, in exceptional circumstances, a non-executive director is required to take on an executive function, • if the circumstances of the recruitment make it appropriate to provide relocation, travel and subsistence payments, • where it is considered appropriate to reflect remuneration arrangements provided by a previous employer, including that the Committee may grant ‘buy-out’ awards to reflect remuneration forfeited on leaving a previous employer. Any such buy-out award would be determined taking into account relevant factors of the forfeited award – including the period over which it would have vested and any applicable performance conditions, and • where it is considered appropriate to reimburse the new director for any costs he/she may have incurred as a consequence of resigning from their previous employment. The Committee would not use this discretion to make a non-performance-based incentive payment, such as a guaranteed bonus.

BREEDONGROUP.COM 73 GOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED

ANNUAL REPORT ON REMUNERATION The remuneration of the directors for the year ended 31 December 2019 was as shown in the table below:

2019

PSP awards Bonus Fees Benefits Pension vesting Director Salary (note 1) (note 2) (note 3) (note 4) (note 5) Total Amit Bhatia* – – 121,385 – – – 121,385 Peter Tom CBE** – – 309,492 – – 298,733 608,225 Pat Ward 611,250 635,234 – 19,292 92,646 718,070 2,076,492 Rob Wood 407,500 423,489 – 22,174 61,764 242,537 1,157,464 Peter Cornell – – 50,000 – – – 50,000 Susie Farnon – – 70,000 – – – 70,000 Moni Mannings*** – – 5,000 – – – 5,000 Clive Watson**** – – 20,000 – – – 20,000 David Williams***** – – 60,000 – – – 60,000 Total 1,018,750 1,058,723 635,877 41,466 154,410 1,259,340 4,168,566

* Amit Bhatia appointed Chairman on 29 May 2019 ** Peter Tom retired from the Board on 29 May 2019 *** Moni Mannings appointed to the Board on 1 December 2019 **** Clive Watson appointed to the Board on 1 September 2019 ***** David Williams retired from the Board on 31 December 2019 Notes: 1 Further information in relation to the bonuses payable to Pat Ward and Rob Wood is given on page 75 and these bonuses were earned pursuant to their service agreements and the rules of the Group’s executive bonus scheme. 2 Included in fees above is an amount of £189,375 (2018: £437,500) in respect of services provided by Rise Rocks Limited, a company in which Peter Tom had a beneficial interest, and the sum of £120,117 (2018: £340,335) which was paid to Rise Rocks Limited as a bonus pursuant to the consultancy agreement between the Company and Rise Rocks Limited; further information is given on page 76. Both these payments were prorated to 29 May 2019 when Peter Tom retired from the Board. 3 Benefits paid to Pat Ward and Rob Wood comprise the provision of private medical insurance, the provision of a car allowance and the reimbursement of certain travel costs. 4 Both Pat Ward and Rob Wood received a salary supplement in lieu of a contribution to a pension arrangement.

5 Further information in relation to the PSP awards vesting for Peter Tom, Pat Ward and Rob Wood is given on page 75. These PSP awards vested in accordance with the scheme rules.

74 BREEDON GROUP ANNUAL REPORT 2019 The remuneration of the directors for the year ended 31 December 2018 was as shown in the table below:

2018

PSP awards Bonus Fees Benefits Pension vesting Director Salary (note 1) (note 2) (note 3) (note 4) (note 5) Total GOVERNANCE Peter Tom CBE – – 777,835 – – 574,900 1,352,735 Pat Ward 581,250 453,780 – 16,960 89,383 192,384 1,333,757 Rob Wood 383,750 352,520 – 22,656 59,012 547,736 1,365,674 Amit Bhatia – – 37,500 – – – 37,500 Peter Cornell* – – 12,500 – – – 12,500 Susie Farnon – – 58,650 – – – 58,650 Simon Vivian** – – 12,500 – – 267,301 279,801 David Warr*** – – 57,500 – – – 57,500 David Williams – – 57,500 – – – 57,500 Total 965,000 806,300 1,013,985 39,616 148,395 1,582,321 4,555,617

* Peter Cornell joined the Board on 1 October 2018 ** Simon Vivian retired from the Board on 7 March 2018 *** David Warr retired from the Board on 31 December 2018 Notes: 1 The bonuses payable to Pat Ward and Rob Wood were earned pursuant to their service agreements and the rules of the Group’s executive bonus scheme. In addition, Rob Wood had a supplement of £50,000 applied to his bonus to reflect his contribution to the acquisition and subsequent integration of the Lagan business. 2 Included in fees above is an amount of £437,500 (2017: £393,750) in respect of services provided by Rise Rocks Limited, a company in which Peter Tom has a beneficial interest, and the sum of £340,335 (2017: £335,560) which was paid to Rise Rocks Limited as a bonus pursuant to the consultancy agreement between the Company and Rise Rocks Limited. 3 Benefits paid to Pat Ward and Rob Wood comprise the provision of private medical insurance, the provision of a car allowance and the reimbursement of certain travel costs. 4 Both Pat Ward and Rob Wood received a salary supplement in lieu of a contribution to a pension arrangement. 5 PSP awards which vested in 2018 in respect of the three years 2015, 2016 and 2017 and additionally for Rob Wood in respect of 2014.

BONUSES Pat Ward and Rob Wood were each eligible to earn a bonus of up to 125 per cent of salary, based on the achievement of stretching Underlying EBIT targets. Bonuses were earned as set out below:

Threshold level of Target level of Maximum level of Actual level of Bonus earned Underlying EBIT Underlying EBIT Underlying EBIT Underlying EBIT1 (percentage of salary) £m £m £m £m % 102.3 116.6 122.1 118.3 103.29

1 Including a capital employed moderator.

PSP AWARDS VESTING IN RESPECT OF PERFORMANCE IN 2019 Awards were granted under the PSPs in April 2017, with vesting subject to a performance condition based on Underlying diluted EPS growth in excess of RPI over a performance period running from 2017 to 2019. Subject to the rules of the PSPs, the executive directors’ awards will vest in April 2020 as described below:

Vesting level

Threshold Maximum EPS EPS growth in growth in Shares excess of RPI excess of RPI Actual EPS subject to (20% of the (100% of the growth in Number Director award award vests) award vests) excess of RPI Percentage of shares Peter Tom CBE* 373,665 25% 59% 42.82% 61.85% 231,112 Pat Ward 695,364 25% 59% 42.82% 61.85% 430,083 Rob Wood 417,218 25% 59% 42.82% 61.85% 258,050

* The option to Peter Tom was granted to Rise Rocks Limited, a company in which he had a beneficial interest and which provided his services as Executive Chairman of the Company. Following Peter Tom’s retirement from the Board. on 29 May 2019, the number of shares held under the Option was reduced pro rata to the length of his service in accordance with the rules of the Scheme.

BREEDONGROUP.COM 75 GOVERNANCE DIRECTORS’ REMUNERATION REPORT CONTINUED

PSP AWARDS GRANTED IN 2019 On 15 April 2019, awards were granted to the executive directors under the PSPs. The vesting of those awards is subject to a performance condition based on Underlying diluted EPS growth as follows, assessed over 2019, 2020 and 2021:

EPS growth per annum Percentage of award that vests Less than 4.9% 0% Equal to 4.9% 20% Between 4.9% and 10.5% Between 20% and 100% on a straight line basis 10.5% or more 100%

Awards were granted to the Executive Chairman and Group Chief Executive at 150 per cent of salary and the Group Finance Director at 125 per cent as follows: Peter Tom CBE†: 1,014,479 shares Pat Ward: 1,352,639 shares Rob Wood: 751,466 shares † The award to Peter Tom was granted to Rise Rocks Limited, a company in which he had a beneficial interest and which provided his services as Executive Chairman of the Company. Following Peter Tom’s retirement from the Board. on 29 May 2019, the number of shares held under the Option was reduced, pro rata to the length of his service to 42,579 shares in accordance with the rules of the Scheme.

IMPLEMENTATION OF THE REMUNERATION POLICY IN 2020 A review of policy will take place in 2020 followed by consultation with our major shareholders.

EXECUTIVE DIRECTORS’ SALARIES In accordance with Breedon’s usual salary review timetable for the business as a whole, executive directors’ salaries for 2020 will increase with effect from 1 April 2020. Any increases to executive directors’ salaries will be in line with the range of increases awarded to the wider workforce and will be reported in the 2020 Directors’ Remuneration report.

NON-EXECUTIVE DIRECTORS’ FEES The fee for the non-executive chairman for 2020 is £170,000. The basic fee for the non-executive directors for 2020 are: • Basic fee: £50,000; • The additional fee for holding the office of Senior Independent Director, for chairing the Audit or Remuneration Committee remains at: £10,000.

EXECUTIVE DIRECTORS’ BONUS OPPORTUNITY For 2020, the executive directors will continue to have the opportunity to earn a bonus of up to 125 per cent of salary. The bonus will be subject to stretching performance conditions based on Underlying EBIT. The performance targets contain confidential information and so are not disclosed on a prospective basis. However, the Committee proposes to disclose the targets, and performance against them, retrospectively as has been done for the bonuses earned in 2019.

PSP AWARDS The Committee currently expects to grant awards under the PSPs in 2020 at the level of 150 per cent of salary for the Group Chief Executive, and 125 per cent for the Group Finance Director. The awards will vest subject to the satisfaction of a performance condition assessed over 2020, 2021 and 2022.

DIRECTORS’ INTERESTS IN SHARE PLANS Details of the directors’ interests in the Company’s share-based incentive schemes are set out on page 80.

Moni Mannings Chair, Remuneration Committee 11 March 2020

76 BREEDON GROUP ANNUAL REPORT 2019 NOMINATION COMMITTEE REPORT

The Nomination Committee has continued to keep the leadership of the Group under review, and to ensure adequate resources are made available to support its future development. The role of the Committee is to: • Regularly review the structure, size and composition (including the skills, knowledge, experience and

diversity) of the Board and make recommendations GOVERNANCE to the Board with regard to any changes; • Give full consideration to succession planning for directors and other senior executives in the course of its work, taking into account the challenges and opportunities facing the company, and the skills and expertise needed on the Board in the future; • Keep under review the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace; • Keep up to date and fully informed about strategic issues and commercial changes affecting the Amit Bhatia company and the market in which it operates; and Chairman, Nomination Committee • Be responsible for identifying and nominating for the approval of the Board, candidates to fill Board KEY ACTIVITIES CARRIED OUT IN THE YEAR: vacancies as and when they arise. During the year, the Committee met five times and During the year, the focus of the Committee has been discussed the following: the composition of the Board and the succession plans • Succession Plans for executive directors and for the Group’s senior executives, to ensure that there the Executive Committee is the appropriate balance of skills, knowledge, • Retirement and appointment of Chairman experience and diversity, to enable the continued of the Board success of Breedon to achieve its strategic goals. • Retirement and appointment of This was primarily driven by: non-executive directors • The consideration of the retirement of the Executive Chairman and the recommendation MEETING ATTENDANCE of the appointment of Amit Bhatia as Meetings Eligible Non-executive Chairman (under the Chairmanship of attended to attend the Senior Independent Director); Amit Bhatia, • The consideration of the retirement of two long 3 3 Committee Chairman serving non-executive directors and the recommendation of the appointment of two Peter Cornell, 4 5 independent non-executive directors; and Independent Non-executive Director • The consideration of succession plans for executive Susie Farnon, 5 5 director and Executive Committee roles. Independent Non-executive Director As per the Terms of Reference, throughout the year Peter Tom, CBE the Nomination Committee was chaired by the 1 1 Executive Chairman* Chairman of the Company, except on one occasion when under discussion included the appointment of David Williams, 4 4 his own successor. The quorum for Committee Non-executive Director** meetings is a minimum of two directors and must Clive Watson, comprise a majority of independent directors. 1 1 Independent Non-executive Director*** The Committee was quorate for all meetings in 2019. * Peter Tom retired from the Board on 29 May 2019 ** David Williams retired from the Board on 31 December 2019 *** Clive Watson appointed to the Board on 1 September 2019

BREEDONGROUP.COM 77 GOVERNANCE NOMINATION COMMITTEE REPORT CONTINUED

TERMS OF REFERENCE The full Terms of Reference for the Nomination Committee are available on our corporate website.

CHAIRMAN’S REPORT 2019 has seen the Nomination Committee fully consider the succession plan for both the Board and senior executives within the business. In terms of the Board, the Committee reviewed the future position as to those directors nearing the end of their term (particularly those that had given considerable length of service) and the role of independent Board members, alongside the current composition and attributes of the Board. The Committee reflected on the recommendation made in 2018 with my appointment as Deputy Chairman and in consideration of the retirement of Peter Tom as Executive Chairman, they recommended to the Board that I should be appointed as Non-executive Chairman. The Committee had identified as a key directive, the requirement for a search process for two new independent non- executive directors balancing any potential conflicts of interest whilst seeking industry expertise, skills and diversity to complement the Board. The process was supported by Korn Ferry, an executive search and recruitment company, engaged solely for this purpose. The Nomination Committee recommended the appointment to the Board of Clive Watson and Moni Mannings as independent non- executive directors. Following the recommendation of the Nomination Committee in February 2020, it is anticipated that Carol Hui will be appointed to the Board in spring 2020. With regards to senior executives, the Nomination Committee considered proposed succession plans for both executive director and Executive Committee roles to ensure the continued strategic operational leadership of the company. The Nomination Committee firmly believes that an inclusive culture, with a range of perspectives is a key driver of business success and is committed to having a diverse Board, so to make effective contributions and effectively challenge management.

Amit Bhatia Chairman, Nomination Committee 11 March 2020

78 BREEDON GROUP ANNUAL REPORT 2019 DIRECTORS’ REPORT

The directors present their report, together with the audited Financial Statements, for the year ended 31 December 2019.

PRINCIPAL ACTIVITIES AND BUSINESS REVIEW The principal activities of the Group are the quarrying of aggregates and manufacture and sale of construction materials and building products in GB and Ireland, including cement, asphalt and ready-mixed concrete, together GOVERNANCE with related activities. Further details of the Group’s activities and future developments are included in the Statement from the Chair, and the Group Chief Executive’s review on pages 8 to 15 and in the Group Finance Director’s review and Business reviews on pages 28 to 43.

RISK MANAGEMENT The Board is responsible for the Group’s system of risk management and continues to develop policies and procedures that reflect the nature and scale of the Group’s business. Further details of the key areas of risk to the business identified by the Group are included on pages 24 to 27. Details of the Group’s operational key performance indicators are shown on pages 22 and 23.

RESULTS AND DIVIDENDS For the year to 31 December 2019, the Group’s profit before tax was £94.6 million (2018: £79.9 million) and after tax was a profit of £78.0 million (2018: £64.6 million). Recognising the Group’s scale, level of maturity and cash generation, the Directors propose to adopt a progressive dividend policy from 2021.

STATED CAPITAL Details of the Company’s shares in issue are set out in note 18 to the Financial Statements.

DIRECTORS The following directors served during the year:

Amit Bhatia Non-executive Chairman Pat Ward Group Chief Executive Rob Wood Group Finance Director Peter Cornell Independent Non-executive Director Susie Farnon Independent Non-executive Director Moni Mannings (appointed 1 December 2019) Independent Non-executive Director Clive Watson (appointed 1 September 2019) Independent Non-executive Director Peter Tom CBE (retired 29 May 2019) Executive Chairman David Williams (retired 31 December 2019) Non-executive Director

Biographical details of the directors serving at the year-end can be found on pages 58 and 59 and details of the directors’ service contracts are given in the Directors’ Remuneration report on page 72.

DIRECTORS’ INTERESTS The directors in office at 31 December 2019 had interests in the issued share capital of the Company as shown in the table below:

Ordinary Shares

2019 2018 Amit Bhatia 500,000 500,000 Pat Ward 1,072,994 483,590 Rob Wood 940,395 672,823 Peter Cornell 140,000 140,000 Susie Farnon 1,865,000 1,865,000 Moni Mannings* – – Clive Watson** 35,000 –

* Moni Mannings appointed to the Board on 1 December 2019 ** Clive Watson appointed to the Board on 1 September 2019

BREEDONGROUP.COM 79 GOVERNANCE DIRECTORS’ REPORT CONTINUED

In addition, the following directors had an interest in the shares set against their names in the table below in accordance with the rules of the Group’s share-based incentive schemes:

Savings-Related Performance Share Plan Share Option Scheme

31 December 31 December 31 December 31 December 2019 2018 2019 2018 Pat Ward 3,118,157 2,938,313 54,545 30,030

Rob Wood 1,763,214 1,437,279 54,545 79,365 The savings-related share options held by Pat Ward and Rob Wood are exercisable at a price of 55.0 pence and are normally exercisable between 1 May 2024 and 30 October 2024. Further details of the above schemes are set out in note 19 to the Financial Statements. All the interests are beneficial, unless indicated otherwise. No director has any interests in the issued share capital or loan stock of any subsidiary undertaking. Clive Watson, Non-executive Director purchased 37,500 ordinary shares, increasing his interest to 72,500 ordinary shares on 20 January 2020. There were no further changes in the directors’ interests between 1 January 2020 and 11 March 2020.

SUBSTANTIAL SHAREHOLDINGS The Company is aware that, as at 25 February 2020, other than the directors, the interests of shareholders holding three per cent or more of the issued share capital of the Company were as shown in the table below:

Number % Invesco Perpetual Asset Management 177,651,682 10.6 Abicad Holding Limited* 164,959,102 9.8 Columbia Threadneedle Investments 131,865,704 7.8 Lansdowne Partners 111,070,275 6.6 Merian Global Investors 91,953,182 5.5 Octopus Investments 73,460,657 4.3 Investec Asset Management 63,024,081 3.7 AXA Investment Managers 61,356,676 3.7 Blackrock Investment Management 59,315,026 3.5 Aviva Investors 53,217,590 3.2

* Amit Bhatia has been appointed as Abicad Holding Limited’s Representative Director on the Board of the Company pursuant to a relationship deed dated 17 November 2015.

EMPLOYEES The Group recognises the importance of employee involvement in the operation and development of its business units, which are given autonomy, within a group policy and structure, to enable management to be fully accountable for their own actions and gain maximum benefit from local knowledge. Employees are informed by regular consultation, intranet, and internal newsletters of the progress of both their own business units and the Group as a whole. The Group is committed to providing equal opportunities for individuals in all aspects of employment, and considers the skills and aptitudes of disabled persons in recruitment, career development, training and promotion. If existing employees become disabled, every effort is made to retain them, and retraining is arranged wherever possible.

POLITICAL CONTRIBUTIONS The Group did not make any contributions to political parties during either the current or the previous year.

80 BREEDON GROUP ANNUAL REPORT 2019 ANNUAL GENERAL MEETING The Annual General Meeting will be held in the Park Suite, Park Plaza, Westminster Bridge, County Hall – Riverside Building, Belvedere Road, London SE1 7GP on 21 April 2020 at 2.00pm. The formal notice convening the AGM, together with explanatory notes on the resolutions contained therein, is included in the separate circular accompanying this document and is available on the Company’s website at www.breedongroup.com.

GOING CONCERN GOVERNANCE The Group meets its day-to-day working capital and other funding requirements through its banking facility, which includes an overdraft facility, which expires in April 2022. Further details of the Group’s bank facilities are given on page 31. The Group actively manages its financial risks as set out in note 20 to the Financial Statements and operates Board-approved financial policies, including interest rate hedging policies, that are designed to ensure that the Group maintains an adequate level of headroom and effectively mitigates financial risks. On the basis of current financial projections and facilities available, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, consider it appropriate to adopt the going concern basis in preparing these Financial Statements.

VIABILITY STATEMENT The directors have assessed the viability of the Group over a period to December 2022. This is the same period over which financial projections were prepared for the Group’s strategic financial plan. In making their assessment the directors have taken into account the Group’s current position and the potential impact of the principal risks and uncertainties set out on pages 24 to 27 on its business model, future performance, solvency or liquidity. They also stress tested their analysis by running a number of credible scenarios and considered the availability of mitigating actions. Based on this assessment, the directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to December 2022. In making this statement, the directors have assumed that financing remains available and that mitigating actions are effective.

DISCLOSURE OF INFORMATION TO AUDITOR The directors who hold office at the date of this Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s Auditor is unaware, and each director has taken all steps that he or she ought to have taken to make himself or herself aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information.

AUDITOR Further to the tender exercise for audit services undertaken by the Audit Committee in 2019 (detailed on page 68) KPMG LLP has expressed willingness to continue in office and, in accordance with Article 113 of the Companies (Jersey) Law 1991, a resolution to reappoint KPMG LLP will be proposed at the forthcoming AGM.

By order of the Board

Amit Bhatia Pat Ward Non-executive Chairman Group Chief Executive 11 March 2020

BREEDONGROUP.COM 81 GOVERNANCE STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE DIRECTORS’ REPORT AND THE FINANCIAL STATEMENTS

The directors are responsible for preparing the Financial Statements in accordance with applicable law and regulations. Company law requires the directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with International Financial Reporting Standards and applicable law. Under company law the directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these Financial Statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; • assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with Companies (Jersey) Law, 1991. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the Jersey governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

82 BREEDON GROUP ANNUAL REPORT 2019 FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

Independent Auditor’s Report 84 Consolidated Income Statement 90 Consolidated Statement of 91 Comprehensive Income Consolidated Statement of Financial Position 92 Consolidated Statement of Changes in Equity 93 Consolidated Statement of Cash Flows 94 Notes to the Financial Statements 95

Crime Rigg quarry in County Durham

BREEDONGROUP.COM 83 FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BREEDON GROUP PLC

1. OUR OPINION IS UNMODIFIED We have audited the Financial Statements of Breedon Group plc (“the Group”) for the year ended 31 December 2019 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity, and the related notes, including the accounting policies in note 1. In our opinion: • give a true and fair view, in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRSs as adopted by the EU”), of the state of the Group’s affairs as at 31 December 2019 and of the Group’s profit for the year then ended; and • the Financial Statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

Overview Materiality: £4.5m (2018: £4.0m) Financial Statements as a whole 4.8% of Group profit before tax. (2018: 4.6% of Group profit before tax adjusted for acquisition costs of £6.4 million).

Coverage 94% (2018: 93%) of Group profit before tax

Key audit matters vs 2018

Brexit The impact of uncertainties due to the UK exiting the European Union on our audit.

Goodwill Recoverability of goodwill allocated to Cement and Ireland.

Key Risk unchanged from 2018

84 BREEDON GROUP ANNUAL REPORT 2019 2. KEY AUDIT MATTERS: INCLUDING OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the Financial Statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters in arriving at our audit opinion above, together with our key audit procedures to address those matters. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

The risk Our response The impact of Unprecedented levels of uncertainty We developed a standardised firm-wide uncertainties due to All audits assess and challenge the approach to the consideration of the the UK exiting the reasonableness of estimates, in particular uncertainties arising from Brexit in planning

European Union on as described in the key audit matter on and performing our audits. FINANCIAL STATEMENTS our audit. recoverability of goodwill allocated to Our procedures included: Refer to page 24 Cement and Ireland and related • Our Brexit knowledge: We considered (principal risks), disclosures and the appropriateness of the the directors’ assessment of Brexit-related page 81 (viability going concern basis of preparation of the sources of risk for the Group’s business statement), pages 66 Financial Statements. All of these depend and financial resources compared with to 68 (Audit on assessments of the future economic our own understanding of the risks. Committee report). environment and the Group’s future We considered the directors’ plans to prospects and performance. take action to mitigate the risks. Brexit is one of the most significant • Sensitivity analysis: When addressing economic events for the UK and its effects the recoverability of goodwill allocated to are subject to unprecedented levels of Cement and Ireland and other areas that uncertainty of consequences, with the depend on forecasts and cash flows, we full range of possible effects unknown. compared the directors’ analysis to our assessment of the full range of reasonably possible scenarios resulting from Brexit uncertainty and, where forecast cash flows are required to be discounted, considered adjustments to discount rates for the level of remaining uncertainty. • Assessing transparency: As well as assessing individual disclosures as part of our procedures on the recoverability of goodwill allocated to Cement and Ireland, we considered all of the Brexit-related disclosures together, including those in the strategic report, comparing the overall picture against our understanding of the risks. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

BREEDONGROUP.COM 85 FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BREEDON GROUP PLC CONTINUED

2. KEY AUDIT MATTERS: INCLUDING OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT CONTINUED

The risk Our response Recoverability of Forecast-based valuation Our procedures included: goodwill allocated to Both the Cement and Ireland businesses • Benchmarking assumptions: Cement (£152.0 million are still at an early stage in their trading We challenged, using our own valuation (2018: £155.0 million)) lifecycle under the Group’s ownership and specialists, the key inputs used in the and Ireland (£106.4 market conditions continue to Group’s calculation of the discount million (2018: £110.0 be challenging. rates by comparing them to externally- million)). As a result, the amount of headroom of derived data, including available sources Refer to page 67 (Audit value in use over carrying value is at risk for comparable companies. Committee report), of being reduced or eliminated when • Our sector experience: Assessed whether page 99 (accounting testing these Cash Generating Units assumptions used, in particular those policy) and page 111 for impairment. relating to forecast cash flow growth (financial disclosures). There are inherent uncertainties and and long-term growth rates reflect our estimations involved in forecasting knowledge of the business and industry, and discounting future cash flows including known or probable changes in and relatively minor changes in these the business environment. assumptions could give rise to material • Historical comparisons: Considered changes in the assessment of the historical forecasting accuracy, by recoverable amount of goodwill. comparing previously forecast cash The effect of these matters is that, flows to actual results achieved. as part of our risk assessment for audit • Comparing valuations: Compared the planning purposes, we determined that sum of the discounted cash flows to the the recoverable amount of goodwill of Group’s market capitalisation to assess £258.4 million had a high degree of the reasonableness of those cash flows. estimation uncertainty, with a potential • Sensitivity analysis: Performed our own range of reasonable outcomes greater sensitivity analysis over the reasonably than our materiality for the Financial possible combination of changes in the Statements as a whole, and possibly forecasts on the assumptions many times that amount. In conducting noted above. our final audit work, we reassessed the • : Assessed degree of estimation uncertainty to be Assessing transparency whether the Group’s disclosures regarding less than that materiality. the sensitivity of the impairment assessment to changes in key assumptions and the impact of Brexit, appropriately reflected the risks inherent in the valuation of goodwill.

We continue to perform procedures over recognition and valuation of tangible and intangible assets acquired with business acquisitions in the period. However, as the acquisition of Roadway this year is significantly smaller than the Lagan acquisition in the prior year, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified as a key audit matter in our report this year. Similarly, we continue to perform procedures over going concern. However, given the level of headroom on the Group’s financing and covenants, considered alongside the maturity profile of the Group’s borrowings, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified as a key audit matter in our report this year.

86 BREEDON GROUP ANNUAL REPORT 2019 3. OUR APPLICATION OF MATERIALITY AND AN Group profit before tax OVERVIEW OF THE SCOPE OF OUR AUDIT £94.6m (208: £86.3m Group Materiality Materiality for the Financial Statements as a whole Group profit before tax £4.5m (208: £4.0m) was set at £4.5 million (2018: £4.0 million). This has adjusted for acquisition costs of £6.4 million) £4.5m been determined with reference to a benchmark of Whole Financial Group profit before tax of £94.6 million Statements materiality (2018: £86.3 million Group profit before tax adjusted (208: £4.0m) for acquisition costs). The benchmark profit before tax £3.6m for the current year was not adjusted for acquisition Range of materiality at 9 costs given no significant acquisitions occurred in the components (£0.5m-£3.6m) year. The materiality represents 4.8% (2018: 4.6% profit (208: £0.m to £3.0m) before tax of £86.3 million adjusted for acquisition costs of £6.4 million) of this benchmark.

£0.2m FINANCIAL STATEMENTS We agreed to report to the Audit Committee any Misstatements reported corrected or uncorrected identified misstatements to the Audit Committee exceeding £225,000 (2018: £200,000), in addition Group profit before tax (208: £0.2m) to other identified misstatements that warranted Group materiality reporting on qualitative grounds. Of the Group’s 25 (2018: 32) reporting components, 9 (2018: 12) were subject to full scope audits for Group revenue Group profit before tax group reporting purposes, whilst none (2018: 2) were subject to a review of financial information (including enquiry). The group audit team carried out the work  on all of the components located in Great Britain. 6 A separate UK audit director with a team from KPMG Ireland carried out the work over those components 99% 94% based in Ireland. (208 – 93%) (208 – 93%) The component materialities, ranged from £0.5 million to £3.6 million (2018: £0.1 million to £3.0 million), 92 77 having regard to the mix of size and risk profile of 99 94 the Group across the components. The components within the scope of our work accounted for the percentages illustrated opposite. The remaining 1.0% (2018: 7.0%) of total Group Group total assets revenue, 6.0% (2018: 7.0%) of Group profit before tax and 3.0% (2018: 5.0%) of total Group assets is represented by the remaining reporting components,  none of which individually represented more than 2.0% (2018: 3.0%) of any of total Group revenue, Group profit before tax or Group total assets. 97% For these residual components, we performed analysis (208 – 95%) at an aggregated group level to re-examine our assessment that there were no significant risks of 94 material misstatement present. 97

Full scope for group audit purposes 209 Full scope for group audit purposes 208 Specified risk-focused audit procedures 208 Residual components

BREEDONGROUP.COM 87 FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BREEDON GROUP PLC CONTINUED

4. WE HAVE NOTHING TO REPORT 5. WE HAVE NOTHING TO REPORT ON THE OTHER ON GOING CONCERN INFORMATION IN THE ANNUAL REPORT The directors have prepared the Financial Statements The directors are responsible for the other information on the going concern basis as they do not intend to presented in the Annual Report together with the liquidate the parent Company or the Group or to cease Financial Statements. Our opinion on the Financial their operations, and as they have concluded that the Statements does not cover the other information and, parent Company’s and the Group’s financial position accordingly, we do not express an audit opinion or, means that this is realistic. They have also concluded except as explicitly stated below, any form of that there are no material uncertainties that could have assurance conclusion thereon. cast significant doubt over their ability to continue as Our responsibility is to read the other information and, a going concern for at least a year from the date of in doing so, consider whether, based on our Financial approval of the Financial Statements (“the going Statements audit work, the information therein is concern period”). materially misstated or inconsistent with the Financial Our responsibility is to conclude on the Statements or our audit knowledge. Based solely on appropriateness of the directors’ conclusions and, that work we have not identified material had there been a material uncertainty related to going misstatements in the other information. concern, to make reference to that in this audit report. However, as we cannot predict all future events or 6. WE HAVE NOTHING TO REPORT ON THE OTHER conditions and as subsequent events may result in MATTERS ON WHICH WE ARE REQUIRED TO outcomes that are inconsistent with judgements that REPORT BY EXCEPTION were reasonable at the time they were made, the Under the Companies (Jersey) Law 1991, we are absence of reference to a material uncertainty in this required to report to you if, in our opinion: auditor’s report is not a guarantee that the Group or • proper accounting records have not been kept by the parent Company will continue in operation. the Company; or In our evaluation of the directors’ conclusions, • proper returns adequate for our audit have not been we considered the inherent risks to the Group’s and received from branches not visited by us; or the parent Company’s business model and analysed how those risks might affect the Group’s and the • the Company’s Financial Statements are not in parent Company’s financial resources or ability to agreement with the accounting records and returns; continue operations over the going concern period. or The risks that we considered most likely to adversely • we have not received all the information and affect the Group’s and the parent Company’s available explanations we require for our audit. financial resources over this period were the impact of We have nothing to report in these respects. macro-economic factors following a no-deal Brexit. As these were risks that could potentially cast 7. RESPECTIVE RESPONSIBILITIES significant doubt on the parent Company’s or the Directors’ responsibilities Group’s ability to continue as a going concern, As explained more fully in their statement set out we considered sensitivities over the level of available on page 82, the directors are responsible for: financial resources indicated by the parent Company’s the preparation of the Financial Statements including or the Group’s financial forecasts taking account of being satisfied that they give a true and fair view; reasonably possible (but not unrealistic) adverse such internal control as they determine is necessary effects that could arise from these risks individually to enable the preparation of Financial Statements that and collectively and evaluated the achievability of the are free from material misstatement, whether due to actions the directors consider they would take to fraud or error; assessing the Group and parent improve the position should the risks materialise. Company’s ability to continue as a going concern, We also considered less predictable but realistic disclosing, as applicable, matters related to going second order impacts, such as the erosion of customer concern; and using the going concern basis of or supplier confidence, which could result in a rapid accounting unless they either intend to liquidate the reduction of available financial resources. Group or the parent Company or to cease operations, Based on this work, we are required to report to or have no realistic alternative but to do so. you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the Financial Statements. We have nothing to report in these respects and we did not identify going concern as a key audit matter.

88 BREEDON GROUP ANNUAL REPORT 2019 Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the

Financial Statements. FINANCIAL STATEMENTS A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.

8. THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE OWE OUR RESPONSIBILITIES This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Craig Parkin for and on behalf of KPMG LLP, Chartered Accountants and Recognised Auditor One Snowhill Snowhill Queensway Birmingham B4 6GH 11 March 2020

BREEDONGROUP.COM 89 FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019

2019 2018

Non – Non – underlying* underlying* Underlying (note 3) Total Underlying (note 3) Total Note £m £m £m £m £m £m Revenue 1,2 929.6 – 929.6 862.7 – 862.7 Cost of sales (587.2) – (587.2) (556.9) – (556.9) Gross profit 342.4 – 342.4 305.8 – 305.8 Distribution expenses (163.8) – (163.8) (145.5) – (145.5) Administrative expenses (63.6) (8.0) (71.6) (58.5) (11.8) (70.3) Group operating profit 115.0 (8.0) 107.0 101.8 (11.8) 90.0 Share of profit of associate and joint ventures 11 1.6 – 1.6 1.7 – 1.7 Profit from operations 2 116.6 (8.0) 108.6 103.5 (11.8) 91.7 Financial income 6 – – – 0.1 – 0.1 Financial expense 6 (14.0) – (14.0) (11.9) – (11.9) Profit before taxation 102.6 (8.0) 94.6 91.7 (11.8) 79.9 Taxation 7 (17.3) 0.7 (16.6) (15.9) 0.6 (15.3) Profit for the year 85.3 (7.3) 78.0 75.8 (11.2) 64.6 Attributable to: Equity holders of the parent 85.2 (7.3) 77.9 75.7 (11.2) 64.5 Non–controlling interests 0.1 – 0.1 0.1 – 0.1 Profit for the year 85.3 (7.3) 78.0 75.8 (11.2) 64.6 Basic earnings per ordinary share 24 5.08p 4.64p 4.70p 4.01p Diluted earnings per ordinary share 24 5.07p 4.63p 4.68p 3.99p * Non–underlying items represent acquisition–related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items.

90 BREEDON GROUP ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019

2019 2018 Note £m £m Profit for the year 78.0 64.6 Other comprehensive income Items which may be reclassified subsequently to profit and loss: Foreign exchange differences on translation of foreign operations, net of hedging (13.3) 6.6 Effective portion of changes in fair value of cash flow hedges (1.5) – Taxation on items taken directly to other comprehensive income 7 0.2 – Other comprehensive (expense)/income for the year (14.6) 6.6 Total comprehensive income for the year 63.4 71.2

Total comprehensive income for the year is attributable to: FINANCIAL STATEMENTS Equity holders of the parent 63.3 71.1 Non-controlling interests 0.1 0.1 63.4 71.2

BREEDONGROUP.COM 91 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2019

2019 2018 Note £m £m Non-current assets Property, plant and equipment 8 698.6 665.9 Intangible assets 9 464.2 467.0 Investment in associate and joint ventures 11 10.8 6.4 Total non-current assets 1,173.6 1,139.3 Current assets Inventories 13 58.5 54.8 Trade and other receivables 14 164.7 160.8 Cash and cash equivalents 23.8 37.6 Total current assets 247.0 253.2 Total assets 1,420.6 1,392.5 Current liabilities Interest-bearing loans and borrowings 15 (43.9) (31.2) Trade and other payables 16 (177.9) (177.5) Current tax payable (7.6) (7.3) Provisions 17 (2.5) (2.3) Total current liabilities (231.9) (218.3) Non-current liabilities Interest-bearing loans and borrowings 15 (270.2) (317.1) Provisions 17 (32.2) (36.2) Deferred tax liabilities 12 (47.2) (47.6) Total non-current liabilities (349.6) (400.9) Total liabilities (581.5) (619.2) Net assets 839.1 773.3 Equity attributable to equity holders of the parent Stated capital 18 550.0 549.0 Hedging reserve 18 (1.3) – Translation reserve 18 (6.7) 6.6 Retained earnings 297.0 217.5 Total equity attributable to equity holders of the parent 839.0 773.1 Non-controlling interests 0.1 0.2 Total equity 839.1 773.3

These Financial Statements were approved by the Board of Directors on 11 March 2020 and were signed on its behalf by:

Pat Ward Rob Wood Group Chief Executive Group Finance Director

92 BREEDON GROUP ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019

Attributable to equity Non- Stated Hedging Translation Retained holders of controlling Total capital reserve reserve earnings parent interests equity £m £m £m £m £m £m £m Balance at 1 January 2018 377.8 – – 150.1 527.9 0.2 528.1 Shares issued 174.9 – – – 174.9 – 174.9 Expenses of share issue (3.7) – – – (3.7) – (3.7) Dividend to non-controlling interests – – – – – (0.1) (0.1) Total comprehensive income for the year – – 6.6 64.5 71.1 0.1 71.2

Share-based payments – – – 2.9 2.9 – 2.9 FINANCIAL STATEMENTS Balance at 31 December 2018 549.0 – 6.6 217.5 773.1 0.2 773.3 Shares issued 1.0 – – – 1.0 – 1.0 Dividend to non-controlling interests – – – – – (0.2) (0.2) Total comprehensive income for the year – (1.3) (13.3) 77.9 63.3 0.1 63.4 Share-based payments – – – 1.6 1.6 – 1.6 Balance at 31 December 2019 550.0 (1.3) (6.7) 297.0 839.0 0.1 839.1

BREEDONGROUP.COM 93 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019

2019 2018 Note £m £m Cash flows from operating activities Profit for the year 78.0 64.6 Adjustments for: Depreciation 65.2 52.6 Amortisation 3.1 4.2 Financial income – (0.1) Financial expense 14.0 11.9 Share of profit of associate and joint ventures (1.6) (1.7) Net gain on sale of property, plant and equipment (0.8) (0.5) Share-based payments 1.6 2.9 Taxation 16.6 15.3 Operating cash flow before changes in working capital and provisions 176.1 149.2 (Increase)/decrease in trade and other receivables (0.8) 13.5 Increase in inventories (5.7) (0.6) Decrease in trade and other payables (1.8) (0.2) Decrease in provisions (2.0) (1.3) Cash generated from operating activities 165.8 160.6 Interest paid (8.4) (8.9) Interest element of lease payments (2.6) (0.4) Dividend paid to non-controlling interests 10 (0.2) (0.1) Income taxes paid (18.1) (16.5) Net cash from operating activities 136.5 134.7 Cash flows used in investing activities Acquisition of businesses 26 (8.9) (406.3) Purchase of share in joint venture 11 (3.0) – Purchase of property, plant and equipment (56.3) (48.6) Proceeds from sale of property, plant and equipment 3.3 4.9 (Issue)/repayment of loan to joint venture (4.0) 0.4 Interest received – 0.1 Dividends from associate and joint ventures 11 0.8 0.4 Net cash used in investing activities (68.1) (449.1) Cash flows (used in)/from financing activities Proceeds from the issue of shares (net of costs) 18 1.0 171.2 Proceeds from new interest-bearing loans (net of costs) – 409.7 Repayment of interest-bearing loans (69.2) (246.1) Repayment of lease obligations (12.9) (7.4) Net cash (used in)/from financing activities (81.1) 327.4 Net (decrease)/increase in cash and cash equivalents (12.7) 13.0 Cash and cash equivalents at 1 January 37.6 23.9 Foreign exchange differences (1.1) 0.7 Cash and cash equivalents at 31 December 23.8 37.6

94 BREEDON GROUP ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS

1 ACCOUNTING POLICIES The principal activities of the Group are the quarrying of aggregates and manufacture and sale of construction materials and building products, including cement, asphalt and ready-mixed concrete, together with related activities in GB and Ireland. Breedon Group plc is a company domiciled in Jersey. The address of the Company’s registered office is 28 Esplanade, St Helier, Jersey JE2 3QA. Basis of preparation These Financial Statements consolidate the results of the Company and its subsidiary undertakings, and equity account for the Group’s interest in its associate and its joint ventures (collectively ‘the Group’). Applicable laws and accounting standards These consolidated Financial Statements have been prepared in accordance with Adopted IFRS. The consolidated Financial Statements have been prepared under the historical cost convention except for the revaluation to fair value of certain financial instruments. FINANCIAL STATEMENTS Parent company information has not been provided in accordance with Article 105 (11) of the Companies (Jersey) Law 1991. The accounting policies set out below have, unless otherwise stated, been applied consistently throughout the year presented in this financial information. Going concern The Group meets its day-to-day working capital and other funding requirements through its banking facility, which includes an overdraft facility, which expires in April 2022. Further details of the Group’s bank facilities are given in note 15. The Group actively manages its financial risks as set out in note 20 and operates Board-approved financial policies, including interest rate hedging policies, that are designed to ensure that the Group maintains an adequate level of headroom and effectively mitigates financial risks. On the basis of current financial projections and facilities available, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, consider it appropriate to adopt the going concern basis in preparing these Financial Statements. Accounting estimates and judgements The preparation of Financial Statements in conformity with Adopted IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated Financial Statements, are disclosed in note 27. Presentation These Financial Statements are presented in Pounds Sterling (“Sterling”), which is the Group’s functional currency. All financial information presented has been rounded to the nearest 0.1 million. New IFRS Standards and Interpretations The following standards have been adopted by the Group during the year: IFRS 16 – Leases The Group has adopted IFRS 16 – Leases from 1 January 2019. The primary impact of the new standard has been to bring arrangements previously accounted for under IAS 17 as operating leases on balance sheet, with a right-of-use asset and corresponding financial liability of £47.0m recognised on transition at 1 January 2019, being primarily the discounted value of the £69.9m of operating lease commitments disclosed at 31 December 2018 in accordance with IAS 17 – Leases. There was no impact on net assets at the date of transition. The right-of-use asset is presented within property, plant and equipment in the Consolidated Statement of Financial Position and the lease liability is presented within interest-bearing loans and borrowings (see Leases accounting policy on page 102).

BREEDONGROUP.COM 95 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED New IFRS Standards and Interpretations CONTINUED IFRS 16 – Leases CONTINUED The Group has adopted the modified retrospective approach to implementation, meaning the asset and liability have been recognised from 1 January 2019 without restatement of comparative information for 2018, which continues to be reported under IAS 17. It has also elected to take advantage of the practical expedients permitted by the Standard not to recognise lease assets and liabilities in respect of short-term and low-value leases. This accounting change does not impact the covenants on the Group’s banking facility, as they are calculated with reference to the accounting standards adopted by the Group at the point at which the facility was taken out. The impact of the adoption of IFRS 16 on the Group for the year ended 31 December 2019 has been as follows:

Impact of IFRS 16 on the Consolidated Income Statement for the year ended 31 December 2019

Amounts IFRS 16 without As reported adjustments adoption £m £m £m Group operating profit 107.0 (1.0) 106.0 Share of profit of associate and joint ventures 1.6 – 1.6 Profit from operations 108.6 (1.0) 107.6 Financial income – – – Financial expense (14.0) 2.3 (11.7) Profit before taxation 94.6 1.3 95.9 Taxation (16.6) – (16.6) Profit for the period 78.0 1.3 79.3

Impact of IFRS 16 on the Consolidated Statement of Financial Position at 31 December 2019

Amounts IFRS 16 without As reported adjustments adoption £m £m £m Non-current assets Property, plant and equipment 698.6 (42.3) 656.3 Current assets Trade and other receivables 164.7 0.9 165.6 Change in total assets (41.4)

Current liabilities Interest-bearing loans and borrowings (43.9) 5.0 (38.9) Non-current liabilities Interest-bearing loans and borrowings (270.2) 38.6 (231.6) Provisions (32.2) (0.9) (33.1) Change in total liabilities 42.7

Change in total equity 1.3

96 BREEDON GROUP ANNUAL REPORT 2019 1 ACCOUNTING POLICIES CONTINUED New IFRS Standards and Interpretations CONTINUED The Group has also adopted the following standards from 1 January 2019: • IFRIC 23 – Uncertainty over Income Tax Treatments • Amendments to IFRS 9 – Prepayment Features with Negative Compensation • Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures • Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement • Annual Improvements to IFRS Standards 2015–2017 Cycle The adoption of these standards has not had a material impact on the Financial Statements. New IFRS Standards and Interpretations not adopted

At the date on which these Financial Statements were authorised, there were no Standards, Interpretations and FINANCIAL STATEMENTS Amendments which had been issued but were not effective for the year ended 31 December 2019 that are expected to materially impact the Group’s Financial Statements. Basis of consolidation Subsidiary undertakings are entities controlled by the Group. Control exists when the Group is exposed to or has rights to variable returns from its investment with the investee and has the ability to effect those returns through its power over the investee. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. Ordinarily, the Group considers a company a subsidiary undertaking when it holds more than 50 per cent of the shares and voting rights. The Financial Statements of subsidiary undertakings are included in the Group’s Financial Statements from the date that control commences until the date that control ceases. Associates are those entities in which the Group holds more than 20 per cent of the shares and voting rights and has significant influence, but not control, over the financial and operating policies. Joint ventures are those entities over whose activities the Group has joint control, requiring unanimous consent for strategic financial and operating decisions. The Group’s Financial Statements includes the Group’s share of the total comprehensive income of its associate and joint ventures on an equity accounted basis, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an associate or joint venture, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued, except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate or joint venture. Foreign exchange Foreign exchange transactions Transactions in foreign currencies are recorded at the spot rate at the transaction date. Monetary assets and liabilities denominated in foreign currencies are retranslated at the balance sheet date, with all currency translation differences recognised within the Consolidated Income Statement, except for those monetary items that provide an effective hedge for a net investment in a foreign operation. Foreign exchange translation The consolidated Financial Statements are presented in Sterling, which is the functional currency of the Group. The individual Financial Statements of the Group’s subsidiaries and joint ventures with a functional currency other than Sterling are translated into Sterling according to IAS 21 – The Effects of Changes in Foreign Exchange Rates. Results and cash flows are translated using average annual exchange rates for the reporting period, assets and liabilities translated using the closing rates at the reporting date and equity at historic exchange rates. The translation differences resulting from this are recognised in the Consolidated Statement of Comprehensive Income until the subsidiary is disposed of. Goodwill and fair value adjustments arising on acquisition of a foreign operation are regarded as assets and liabilities of the foreign operation and are translated accordingly. Financial instruments Financial instruments are recognised when the Group becomes a party to the contractual provisions of the instrument. The principal financial assets and liabilities of the Group are as follows: Trade receivables and trade payables Trade receivables and trade payables are initially recognised at fair value and then are stated at amortised cost. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, including bank deposits with original maturities of three months or less. For the purposes of the Consolidated Statement of Cash Flows, bank overdrafts are also included as they are an integral part of the Group’s cash management.

BREEDONGROUP.COM 97 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED Financial instruments CONTINUED Bank and other borrowings Interest-bearing bank loans and overdrafts and other loans are recognised initially at fair value less attributable transaction costs. All borrowings are subsequently stated at amortised cost with the difference between initial net proceeds and redemption value recognised in the Consolidated Income Statement over the period to redemption on an effective interest basis. Derivative financial instruments The Group uses financial instruments to manage financial risks associated with the Group’s underlying business activities and the financing of those activities. The Group does not undertake any trading in financial instruments. Derivatives are initially recognised at fair value on the date that the contract is entered into and subsequently remeasured in future periods at their fair value. The gain or loss on the remeasurement of fair value is recognised immediately in profit or loss, unless a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability. In this instance the effective part of any gain or loss on the derivative financial instrument is recognised in the Consolidated Statement of Comprehensive Income and in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the Consolidated Income Statement. Amounts recorded in the hedging reserve are subsequently reclassified to the Consolidated Income Statement when the expense for the hedged transaction is actually recognised. To qualify for hedge accounting, the hedging relationship must meet several conditions with respect to documentation, probability of occurrence, hedge effectiveness and reliability of measurement. At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The Group also documents its assessment, at hedge inception and on an annual basis, as to whether the derivatives that are used in hedging transactions have been, and are likely to continue to be, effective in offsetting changes in fair value or cash flows of hedged items. Mineral reserves and resources Mineral reserves and resources are stated at cost, including both the purchase price and costs incurred to gain access to the reserves. The value of mineral reserves and resources recognised as a result of business combinations is based on the fair value at the point of acquisition. These assets are depreciated using a physical unit-of-production method, over the commercial life of the quarry. Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. This includes right-of-use assets recognised under IFRS 16 – Leases. Depreciation is charged to the Consolidated Income Statement on a straight-line basis over the estimated useful lives of assets, in order to write off the cost or deemed cost of assets. The estimated useful lives are as follows: • Freehold buildings – 50 years • Fixtures and fittings – up to 10 years • Office equipment – up to 5 years • Fixed plant – up to 35 years • Loose plant and machinery – up to 10 years • Motor vehicles – up to 10 years • Right-of-use assets – life of lease or the useful economic life of underlying asset No depreciation is provided on freehold land.

98 BREEDON GROUP ANNUAL REPORT 2019 1 ACCOUNTING POLICIES CONTINUED Intangible assets and goodwill The Group measures goodwill as the fair value of the purchase consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the fair value of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Fair value adjustments are always considered to be provisional at the first reporting date after the acquisition to allow the maximum time to elapse for management to make a reliable estimate. The Group measures non-controlling interests at a proportionate share of the recognised amount of the identifiable net assets at the acquisition date. Goodwill arising on the acquisition of subsidiary undertakings is recognised as an asset in the Consolidated Statement of Financial Position and is subject to annual impairment review. Goodwill arising on the acquisition of associated undertakings is included within the carrying value of the investment. When the excess is negative, a gain on bargain purchase is recognised immediately in the Consolidated Income Statement. FINANCIAL STATEMENTS Other intangible assets that are acquired by the Group as part of a business combination are stated at cost less accumulated amortisation and impairment losses. Cost reflects management’s judgement of the fair value of the individual intangible asset calculated by reference to the net present value of future economic benefits accruing to the Group from the utilisation of the asset, discounted at an appropriate discount rate. Other intangibles arising on the acquisition of associated undertakings are included within the carrying value of the investment. Amortisation is based on the useful economic lives of the assets concerned, currently being the consumption of economic benefits over a period of up to 20 years. Impairment The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets (see separate accounting policies), are reviewed at each reporting date to determine whether there is any indication of impairment. Impairment reviews are undertaken at the level of each significant cash-generating unit, which is no larger than an operating segment as defined by IFRS 8 – Operating Segments. If any such indication exists then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Non-current assets held exclusively with a view to resale Non-current assets acquired exclusively with a view to subsequent disposal are classified as assets held for resale at the acquisition date only where all criteria set out in IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations are satisfied within a short period following the acquisition. When acquired as part of a business combination, non-current assets acquired exclusively with a view to subsequent disposal are initially measured at fair value less costs to sell. Subsequently, these non-current assets are measured at the lower of their current carrying value and current fair value less costs to sell. Subsequent gains or losses on remeasurement are recognised in the Consolidated Income Statement. Gains are not recognised in excess of any cumulative loss. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

BREEDONGROUP.COM 99 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED Emissions rights Emissions rights where an annual allowance is received for nil cost, typically European Union Emissions Trading System credits, are accounted for such that an emissions liability is recognised only in circumstances where emissions have exceeded the allowance from the perspective of the Group as a whole and will require the purchase of additional allowances to settle the emissions liability. Assets and liabilities arising in respect of nil cost emission allowances are accordingly netted against one another in the preparation of the Consolidated Financial Statements. Retirement benefits Obligations for contributions to defined contribution pension plans are recognised as an expense in the Consolidated Income Statement as incurred. Provisions Restoration provisions Where a legal or constructive obligation exists, the Group provides for the costs of restoring a site and of decommissioning associated property, plant and equipment. The initial cost of creating provisions on commencement of the exploitation of the raw materials is included in property, plant and equipment and depreciated over the life of the site. Changes in the measurement of a provision that result from changes in the estimated timing or amount of cash outflows are added to, or deducted from, the cost of the related asset. All provisions are discounted to their present value at a rate that reflects current market assessments of the time value of money and the risks specific to the liability. Other provisions A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and the risks specific to the liability. Revenue Group revenue arises from the sale of goods and contracting services. IFRS 15 requires revenue from contracts with customers to be recognised in line with a principles-based five-step model. This requires the Group to identify performance obligations within its contracts with customers, determine the transaction price applicable to each of these performance obligations and then to select an appropriate method for the timing of revenue recognition, reflecting the substance of the performance obligation, being either recognition at a point in time or over time. Sale of goods The majority of the Group’s revenue is derived from the sale of physical goods to customers. Depending on whether the goods are delivered to or collected by the customer, the contract contains either one performance obligation which is satisfied at the point of collection, or two performance obligations which are satisfied simultaneously at the point of delivery. The transaction price for this revenue is the amount which can be invoiced to the customer once the performance obligations are fulfilled, reduced to reflect provisions recognised for returns, trade discounts and rebates. The Group does not routinely offer discounts or volume rebates, but where it does the variable element of revenue is based on the most likely amount of consideration that the Group believes it will receive. This value also excludes items collected on behalf of third parties, such as sales and value added taxes. For all sales of goods, revenue is recognised at a point in time, being the point that the goods are transferred to the customer.

100 BREEDON GROUP ANNUAL REPORT 2019 1 ACCOUNTING POLICIES CONTINUED Revenue CONTINUED Contracting services The majority of contracting services revenue arises from contract surfacing work, which typically comprises short‑term contracts with a performance obligation to supply and lay product. Other contracting services revenue can contain more than one performance obligation dependent on the nature of the contract. The transaction price is calculated as consideration specified by the contract, adjusted to reflect provisions recognised for returns, remedial work arising in the normal course of business, trade discounts and rebates. The Group does not routinely offer discounts or volume rebates, but where it does the variable element of revenue is based on the most likely amount of consideration that the Group believes it will receive. Where the contract provides for elements of variable consideration, these values are included in the calculation of the transaction price only to the extent that it is ‘highly probable’ that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration FINANCIAL STATEMENTS is resolved. Where the transaction price is allocated between multiple performance obligations on other contracts, this typically reflects the allocation of value to each performance obligation agreed with the end customer, unless this does not reflect the economic substance of the transaction. As contracting services performance obligations are satisfied over time, revenue is recognised over time. It is measured on an output basis, being volume of product laid for contract surfacing. Expenses Financial income and expense Financial income and expense comprises interest payable, finance charges, lease interest, interest receivable on funds invested, and gains and losses on related hedging instruments that are recognised in the Consolidated Income Statement. Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Warranties and customer claims The Group provides assurance type warranties over the specification of products, but does not provide extended warranties or maintenance services in its contracts with customers. Additionally, claims with customers may arise in the usual course of business. Both customer claims and warranties are accounted for under IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Income Statement because it excludes items of income or expense that are not taxable or deductible. The Group’s liability for current tax is calculated using tax rates enacted or substantively enacted at the reporting date and includes any adjustment to tax payable in respect of previous years. Deferred tax Deferred tax is provided in full using the Statement of Financial Position liability method and represents the tax expected to be payable or recoverable on the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

BREEDONGROUP.COM 101 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED Leases Accounting policy for leases in 2019 Right-of-use assets and liabilities are recognised for any arrangements meeting the definition of a lease set out in IFRS 16 – Leases. Right-of-use assets are presented within property, plant and equipment in the Consolidated Statement of Financial Position. They are measured at cost, comprising the initial amount of the lease liability adjusted for any lease prepayments, plus any initial direct costs incurred, less any lease incentives received. Right-of-use assets are then depreciated using the straight-line method from the start of the lease to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. Lease liabilities are presented within interest-bearing loans and borrowings. They are measured at the present value of future lease payments, discounted at a rate which reflects both the Group’s incremental borrowing rate, adjusted for the time value of money, and the nature of the leased asset. The Group has also elected to take advantage of the practical expedients permitted by the Standard not to recognise lease assets and liabilities in respect of short-term and low-value leases. Charges recognised in the Consolidated Income Statement in respect of these leases are not significant to the Group. Accounting policy for leases in 2018 For all periods up to and including 2018 the Group applied IAS 17 – Leases in accounting for lease arrangements. Payments made under operating leases were recognised in the Consolidated Income Statement on a straight-line basis over the term of the lease. Lease incentives received were recognised in the Consolidated Income Statement as an integral part of the total lease expense. Leases in which the Group assumed substantially all the risks and rewards of ownership of the leased asset were classified as finance leases. Leased assets acquired by way of finance lease were stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses. Finance lease payments were apportioned between the finance charge and the reduction of the outstanding liability. The finance charge was allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Share-based transactions Equity-settled share-based payments to directors, key employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value is expensed, with a corresponding increase in equity, on a straight line basis over the period that the employees become unconditionally entitled to the awards. At each reporting date, the Group revises the amount recognised as an expense to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share- based payment awards with market-based performance conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. Dividends Dividends are recognised as a liability in the period in which they are approved by the Company’s shareholders. Alternative performance measures The following non-GAAP performance measures have been used in the Financial Statements: i. Underlying EBIT ii. Underlying EBIT margin iii. Underlying EBITDA iv. Underlying basic earnings per share v. Free cash flow vi. Return on invested capital vii. Leverage Management uses these terms as it believes they allow a better understanding of underlying business performance, are consistent with its communication with investors and reflects the way in which the business is managed. A reconciliation between these alternative performance measures to the most directly related statutory measures is included within note 28.

102 BREEDON GROUP ANNUAL REPORT 2019 2 SEGMENTAL ANALYSIS The principal activities of the Group are the quarrying of aggregates and manufacture and sale of construction materials and building products, including cement, asphalt and ready-mixed concrete, together with related activities in GB and Ireland. The Group’s activities are split into the following reportable segments: Great Britain comprising our construction materials and contracting services businesses in Great Britain. Ireland comprising our construction materials and contracting services businesses on the Island of Ireland. Cement comprising our cementitious operations in Great Britain and Ireland. A description of the activities of each segment is included on pages 33 to 43. There are no other operating segments. Income statement FINANCIAL STATEMENTS 2019 2018

Underlying Underlying Revenue EBITDA* Revenue EBITDA* £m £m £m £m Great Britain 615.1 98.4 609.8 92.2 Ireland 202.0 33.8 156.3 25.4 Cement 186.4 58.8 176.5 48.6 Central administration – (10.8) – (11.8) Eliminations (73.9) – (79.9) – Group 929.6 180.2 862.7 154.4 * Underlying EBITDA is earnings before interest, tax, depreciation, amortisation, non-underlying items (note 3) and before our share of profit from associate and joint ventures.

Reconciliation to statutory profit Group Underlying EBITDA as above 180.2 154.4 Depreciation and mineral depletion (65.2) (52.6) Underlying operating profit Great Britain 62.8 61.4 Ireland 26.8 20.9 Cement 36.3 31.4 Central administration (10.9) (11.9) 115.0 101.8 Share of profit of associate and joint ventures 1.6 1.7 Underlying profit from operations (EBIT) 116.6 103.5 Non-underlying items (note 3) (8.0) (11.8) Profit from operations 108.6 91.7 Net financial expense (14.0) (11.8) Profit before taxation 94.6 79.9 Taxation (16.6) (15.3) Profit for the year 78.0 64.6

IFRS 16 adjustments have resulted in increases of £7.9m in EBITDA, £1.0m in Underlying EBIT, and a decrease of £1.3m in profit for the year ended 31 December 2019.

BREEDONGROUP.COM 103 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

2 SEGMENTAL ANALYSIS CONTINUED Disaggregation of revenue from contracts with customers Analysis of revenue by geographic location The primary geographic market for all Group revenues for the purpose of IFRS 15 is the UK and RoI. In line with the requirements of IFRS 8, this is analysed by individual countries as follows:

2019 2018 £m £m United Kingdom 793.3 765.8 Republic of Ireland 134.7 95.2 Other 1.6 1.7 Total 929.6 862.7

Analysis of revenue by major products and service lines

2019 2018 £m £m Sale of goods Great Britain 543.2 532.7 Ireland 51.2 38.0 Cement 186.4 176.5 Eliminations (73.9) (79.9) 706.9 667.3

Contracting services Great Britain 71.9 77.1 Ireland 150.8 118.3 Cement – – Eliminations – – 222.7 195.4 Total 929.6 862.7

Timing of revenue recognition All revenues from the sale of goods relate to products for which revenue is recognised at a point in time as the product is transferred to the customer. Contracting services revenues are accounted for as products and services for which revenue is recognised over time.

104 BREEDON GROUP ANNUAL REPORT 2019 2 SEGMENTAL ANALYSIS CONTINUED Statement of financial position

2019 2018

Total Total Total Total assets liabilities assets liabilities £m £m £m £m Great Britain 661.9 (119.6) 629.2 (119.5) Ireland 251.2 (39.5) 250.9 (35.3) Cement 482.6 (42.0) 471.1 (47.7) Central administration 1.1 (11.5) 3.7 (13.5)

Total operations 1,396.8 (212.6) 1,354.9 (216.0) FINANCIAL STATEMENTS Current tax – (7.6) – (7.3) Deferred tax – (47.2) – (47.6) Net debt 23.8 (314.1) 37.6 (348.3) Total Group 1,420.6 (581.5) 1,392.5 (619.2) Net assets 839.1 773.3

GB total assets include £10.8m (2018: £6.4m) in respect of investment in an associate and joint ventures.

Geographic location of property, plant and equipment assets

2019 2018 £m £m United Kingdom 586.3 546.5 Republic of Ireland 112.3 119.4 Total 698.6 665.9

Analysis of depletion & depreciation, amortisation and capital expenditure

Additions Mineral Amortisation to property, depletion & of intangible plant and depreciation assets equipment £m £m £m 2019 Great Britain 35.6 1.1 29.8 Ireland 7.0 2.0 10.6 Cement 22.5 – 20.0 Central administration 0.1 – 0.3 Total 65.2 3.1 60.7 2018 Great Britain 30.8 1.4 27.9 Ireland 4.5 2.8 6.4 Cement 17.2 – 14.2 Central administration 0.1 – 0.2 Total 52.6 4.2 48.7

Additions to property, plant and equipment exclude additions in respect of business combinations. Current year additions are inclusive of right-of-use asset additions from 1 January 2019 following the adoption of IFRS 16 – Leases.

BREEDONGROUP.COM 105 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

3 NON-UNDERLYING ITEMS Non-underlying items are those which are either unlikely to recur in future periods or which distort the underlying performance of the business, including non-cash items. In the opinion of the directors, this presentation aids understanding of the underlying business performance and references to underlying earnings measures throughout this report are made on this basis. Underlying measures are presented on a consistent basis over time to assist in the comparison of performance.

2019 2018 £m £m Included in administrative expenses: Redundancy and reorganisation costs 1.1 1.5 Acquisition costs (note 26) 3.3 6.4 Loss on property disposals 0.5 0.2 Amortisation of acquired intangible assets 3.1 4.2 Gain on stepped acquisition of joint venture – (0.5) Total non-underlying items (pre-tax) 8.0 11.8 Non-underlying taxation (0.7) (0.6) Total non-underlying items (after tax) 7.3 11.2

4 EXPENSES AND AUDITOR’S REMUNERATION

2019 2018 £m £m Group operating profit has been arrived at after charging/(crediting) Depreciation of property, plant and equipment: Owned assets 54.9 47.7 Leased assets 10.3 4.9 Amortisation of intangible assets 3.1 4.2 Loss on property disposals (note 3) 0.5 0.2 Gain on sale of plant and equipment (1.3) (0.7) Operating lease rentals under IAS 17: Plant, equipment and vehicles – 6.6 Land and buildings – 3.5 Auditor’s remuneration Audit of the Company’s annual accounts – – Audit of the Company’s subsidiary undertakings 0.5 0.6 Non-audit services – – 0.5 0.6

106 BREEDON GROUP ANNUAL REPORT 2019 5 REMUNERATION OF DIRECTORS, STAFF NUMBERS AND COSTS Remuneration received by the directors (the Group’s key management personnel) is summarised below. Disclosure by individual director is provided in the Directors’ Remuneration report on pages 74 and 75. Disclosure of share options, including information on all outstanding options, is provided in the Directors’ Report on page 80.

2019 2018 £m £m Salaries and short-term employee benefits 2.3 2.0 Directors’ fees 0.3 1.0 Share-based payments (note 19) 1.3 1.6 3.9 4.6 FINANCIAL STATEMENTS The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows:

Number of employees

2019 2018 Great Britain 2,101 2,039 Ireland 397 317 Cement 371 310 Central administration 90 34 2,959 2,700 The aggregate payroll costs of these persons (including directors) were as follows:

2019 2018 £m £m Wages and salaries 116.3 106.8 Social security costs 12.8 11.6 Pension costs 5.0 4.0 Share-based payments (note 19) 2.3 2.9 136.4 125.3

6 FINANCIAL INCOME AND EXPENSE

2019 2018 £m £m Bank deposits – 0.1 Financial income – 0.1 Bank loans and overdrafts (8.4) (8.9) Amortisation of prepaid bank arrangement fee (1.2) (1.0) Lease liabilities (2.6) (0.4) Unwinding of discount on provisions (1.8) (1.6) Financial expense (14.0) (11.9)

BREEDONGROUP.COM 107 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

7 TAXATION Recognised in the Consolidated Income Statement

2019 2018 £m £m Current tax expense Current year 18.1 17.1 Prior year (0.5) (0.5) Total current tax 17.6 16.6 Deferred tax expense Current year (1.0) (1.2) Prior year – (0.1) Total deferred tax (1.0) (1.3) Total tax charge in the Consolidated Income Statement 16.6 15.3

Recognised in Other Comprehensive Income

2019 2018 £m £m Deferred tax income Relating to cash flow hedges (0.2) – (0.2) –

Reconciliation of effective tax rate

2019 2018 (restated) £m £m Profit before taxation 94.6 79.9 Tax at the Company’s domestic rate of 19 per cent* 18.0 15.2 Difference between Company and subsidiary statutory tax rates* (1.7) – Expenses not deductible for tax purposes 1.4 1.3 Property sales (0.2) (0.4) Share-based payments 0.1 0.1 Utilisation of unrecognised deferred tax assets (0.2) – Income from associate and joint ventures already taxed (0.3) (0.1) Effect of change in rate – (0.2) Adjustment in respect of prior years (0.5) (0.6) Total tax charge 16.6 15.3 * The Company was previously tax resident in Jersey, with a zero per cent tax rate. During 2019 the tax residency of the Company was moved to the United Kingdom, with a 19 per cent tax rate. The Group’s subsidiary operations continue to pay tax at a rate of 19 per cent (2018: 19 per cent) in the United Kingdom and 12.5 per cent (2018: 12.5 per cent) in the Republic of Ireland. Comparative values for 2018 have been restated to reconcile the Group’s total tax charge to a rate of 19 per cent. A reduction in the UK corporation tax rate from 19 per cent to 17 per cent (effective 1 April 2020) was substantively enacted on 6 September 2016. The deferred tax liability at 31 December 2019 has been calculated based on these rates. The UK Government has indicated that legislation may be introduced to cancel this planned reduction in tax rate. The impact of this would be to calculate deferred tax at a higher rate of 19 per cent, resulting in an increase of £4.6m in the Group’s deferred tax liabilities at 31 December 2019.

108 BREEDON GROUP ANNUAL REPORT 2019 8 PROPERTY, PLANT AND EQUIPMENT

IFRS 16 – Right-of-use

Mineral Plant, Plant, reserves Land and equipment Land and equipment and resources buildings & vehicles buildings & vehicles Total £m £m £m £m £m £m Cost Balance at 1 January 2018 161.4 50.7 390.5 – – 602.6 Translation adjustment 0.6 0.9 2.0 – – 3.5 Acquisitions through business combinations (note 26) 70.4 41.8 83.7 – – 195.9

Additions 4.7 3.0 41.0 – – 48.7 FINANCIAL STATEMENTS Disposals (2.6) (0.9) (7.8) – – (11.3) Reclassification – 0.5 (0.5) – – – Balance at 31 December 2018 234.5 96.0 508.9 – – 839.4 Recognised on adoption of IFRS 16 – – (22.9) 32.1 37.2 46.4 Translation adjustment (1.3) (2.3) (3.2) – – (6.8) Acquisitions through business combinations (note 26) – – 3.4 – 0.2 3.6 Additions 6.3 2.3 49.3 2.6 0.2 60.7 Disposals* (1.5) (2.7) (10.7) (0.4) (0.4) (15.7) Reclassification 5.2 15.2 (20.4) – – – Balance at 31 December 2019 243.2 108.5 504.4 34.3 37.2 927.6 Depreciation and mineral depletion Balance at 1 January 2018 26.2 6.5 92.5 – – 125.2 Translation adjustment – – 0.1 – – 0.1 Charge for the year 8.7 5.3 38.6 – – 52.6 Disposals – (0.1) (4.3) – – (4.4) Balance at 31 December 2018 34.9 11.7 126.9 – – 173.5 Recognised on adoption of IFRS 16 – – (7.2) – 7.2 – Translation adjustment – – (0.2) – – (0.2) Charge for the year 9.4 5.1 40.4 2.9 7.4 65.2 Disposals (0.8) (1.2) (7.2) (0.1) (0.2) (9.5) Reclassification – 2.2 (2.2) – – – Balance at 31 December 2019 43.5 17.8 150.5 2.8 14.4 229.0 Net book value At 31 December 2018 199.6 84.3 382.0 – – 665.9 At 31 December 2019 199.7 90.7 353.9 31.5 22.8 698.6 * Disposals include £2.7m (2018: nil) in relation to changes made to capitalised restoration provisions (note 17)

Assets under construction Presented within plant, equipment and vehicles are assets in the course of construction totalling £31.5m (2018: £29.9m) which are not being depreciated.

BREEDONGROUP.COM 109 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

8 PROPERTY, PLANT AND EQUIPMENT CONTINUED Depreciation and mineral depletion Depreciation and mineral depletion is recognised in the following line items in the Consolidated Income Statement:

2019 2018 £m £m Cost of sales 62.5 50.5 Administration expenses 2.7 2.1 65.2 52.6

Security All mineral reserves, resources, land and buildings are subject to a floating charge as security for bank loans and borrowings, with Barclays Bank plc as security agent for the Group’s lenders.

9 INTANGIBLE ASSETS

Customer Goodwill related Other Total £m £m £m £m Cost At 1 January 2018 190.7 4.6 – 195.3 Translation adjustment 3.5 0.6 0.1 4.2 Acquisitions through business combinations (note 26) 224.2 36.6 19.5 280.3 Disposals (7.9) – – (7.9) At 31 December 2018 410.5 41.8 19.6 471.9 Translation adjustment (7.0) (1.3) (0.1) (8.4) Acquisitions through business combinations (note 26) 6.6 4.9 – 11.5 Disposals – – (2.9) (2.9) At 31 December 2019 410.1 45.4 16.6 472.1 Amortisation At 1 January 2018 – 0.7 – 0.7 Charge for the year – 3.6 0.6 4.2 At 31 December 2018 – 4.3 0.6 4.9 Translation adjustment – (0.1) – (0.1) Charge for the year – 2.2 0.9 3.1 At 31 December 2019 – 6.4 1.5 7.9 Net book value At 31 December 2018 410.5 37.5 19.0 467.0 At 31 December 2019 410.1 39.0 15.1 464.2

Other intangible assets at 31 December 2019 comprise brand and permit assets arising from acquisitions. The amortisation charge on these assets is recognised in non-underlying administrative expenses in the Consolidated Income Statement.

110 BREEDON GROUP ANNUAL REPORT 2019 9 INTANGIBLE ASSETS CONTINUED Impairment tests for cash-generating units containing goodwill Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis, or more frequently if there are indications that the goodwill may be impaired. Goodwill is allocated to groups of CGUs according to the level at which management monitor that goodwill, being the Group’s operating segments. A summary of the carrying value allocated to each operating segment is shown below:

2019 2018 £m £m Great Britain 151.7 145.5 Ireland 106.4 110.0 Cement 155.0 152.0 FINANCIAL STATEMENTS 410.1 410.5

Key assumptions The key assumptions used in performing the impairment review are those used in calculating the value-in-use of each CGU, as set out below: Cash flow projections Cash flow projections for each operating segment are derived from the annual budget approved by the Board for 2020 and the three-year plan for 2021 and 2022. The key assumptions on which budgets and forecasts are based include sales growth, product mix and operating costs. These cash flows are then extrapolated forward for a further 27 years, with the total period of 30 years reflecting the long-term nature of the underlying assets. Budgeted cash flows are based on past experience and forecast future trading conditions. Long-term growth rates Cash flow projections assume growth rates of between 1.5 and 2.5 per cent (2018: between 2.0 and 3.0 per cent) between year 4 to 30 of the cash flow projections. This reflects forecast rates of growth in the UK and RoI. Discount rate Forecast pre-tax cash flows for each segment have been discounted at pre-tax rates of between 9.4 and 10.1 per cent (2018: between 9.2 and 9.6 per cent) which was calculated by an external expert based on market participants’ cost of capital and adjusted to reflect factors specific to each segment. Sensitivity The Group has assessed the impact of possible changes in the key assumptions to the impairment review. Having performed a sensitivity analysis over the key assumptions, the directors have concluded that there are no reasonably possible changes to assumptions which could result in an impairment charge being recognised. Impact of Brexit In performing the impairment review, the directors have carefully considered the additional uncertainty arising from Brexit through performing additional sensitivity analysis based on Brexit specific scenarios. These included changes to the discount rate and modelling the impact of a significant decline in short-to-medium term growth caused by an economic shock following a disorderly exit at the end of the 2020 transition period. This additional analysis indicated the existence of continued headroom for all segments.

BREEDONGROUP.COM 111 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

10 PRINCIPAL GROUP COMPANIES

Percentage of ordinary Country of incorporation shares held Principal activity Subsidiary undertakings Great Britain Breedon Southern Limited England 100% Production of construction materials Breedon Northern Limited Scotland 100% Production of construction materials Alba Traffic Management Limited Scotland 75%* Traffic management Breedon Whitemountain Ltd Scotland 100% Contracting services Breedon Brick Limited Republic of Ireland 100% Manufacture of building products

Ireland Whitemountain Quarries Limited Northern Ireland 100% Production of construction materials Alpha Resource Management Limited Northern Ireland 100% Waste disposal Lagan Asphalt Limited Republic of Ireland 100% Contracting services Lagan Materials Limited Republic of Ireland 100% Production of construction materials

Cement Breedon Cement Limited England 100% Cement production Breedon Cement Ireland Limited Republic of Ireland 100% Cement production

Central administration Breedon Holdings Limited England 100% Service company Breedon Group Services Limited England 100% Service company Breedon Employee Services Ireland Limited Republic of Ireland 100% Service company Breedon Holdings (Jersey) Limited Jersey 100%** Holding company Breedon Facilities Management Limited Scotland 100% Holding company

Associated undertaking BEAR Scotland Limited Scotland 37.5% Contracting services

Joint ventures Kingscourt Country Manor Brick Company Limited Republic of Ireland 50% Distribution of building products Breedon Bow Highways Limited England 50% Contracting services Capital Concrete Limited England 43% Production of construction materials Breedon Bowen Limited England 50% Production of construction materials

* The Consolidated Statement of Financial Position includes total assets of £1.4m (2018: £1.5m) and total liabilities of £0.6m (2018: £0.6m) in respect of Alba Traffic Management Limited, the Group’s 75 per cent owned subsidiary undertaking. ** Denotes shares are held directly by Breedon Group plc.

112 BREEDON GROUP ANNUAL REPORT 2019 11 INVESTMENT IN ASSOCIATE AND JOINT VENTURES The Group equity accounts for its investments in its associate and in its joint ventures.

Joint Associate ventures Total £m £m £m Carrying value At 1 January 2018 1.7 4.5 6.2 Acquisitions – 0.9 0.9 Share of profit of associate and joint ventures 0.6 1.1 1.7 Dividends received (0.4) – (0.4)

Loans to joint ventures reclassified from creditors – 0.2 0.2 FINANCIAL STATEMENTS Loan repayment – (0.4) (0.4) Disposals – (1.8) (1.8) At 31 December 2018 1.9 4.5 6.4 Additions – 3.6 3.6 Share of profit of associate and joint ventures 1.0 0.6 1.6 Dividends received (0.4) (0.4) (0.8) At 31 December 2019 2.5 8.3 10.8

Additions in the year relate to the purchase of a 43 per cent share in Capital Concrete Limited on 1 December 2019. Of the total consideration paid of £3.6m, £3.0m was settled in cash and £0.6m through the transfer of tangible fixed assets. A gain of £0.1m has been recognised on the transfer of these assets at fair value, in proportion to the share of the joint venture not owned by the Group. This has been presented within non-underlying items in the Consolidated Income Statement.

Summary financial information on associate and joint ventures – 100 per cent

2019 2018

Joint Joint Associate ventures Associate ventures £m £m £m £m Non-current assets 6.4 13.5 4.1 4.4 Current assets 23.0 13.9 20.7 7.5 Current liabilities (21.3) (12.2) (18.4) (4.3) Non-current liabilities (1.1) (7.2) (1.1) (0.5) Net assets 7.0 8.0 5.3 7.1 Revenue 108.2 27.9 106.6 22.6 Net profit 2.7 1.0 1.7 1.2

BREEDONGROUP.COM 113 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

12 DEFERRED TAX

1 January Acquisitions Recognised Recognised Translation 31 December 2019 (note 26) in income in equity adjustments 2019 £m £m £m £m £m £m Property, plant and equipment (46.7) (0.6) 2.4 – 0.5 (44.4) Intangible assets (8.2) (0.9) 0.4 – 0.2 (8.5) Derivative liabilities – – – 0.2 – 0.2 Working capital and provisions 7.3 – (1.8) – – 5.5 (47.6) (1.5) 1.0 0.2 0.7 (47.2)

1 January Acquisitions Recognised Recognised Translation 31 December 2018 (note 26) in income in equity adjustments 2018 £m £m £m £m £m £m Property, plant and equipment (33.3) (12.8) (0.5) – (0.1) (46.7) Intangible assets (0.7) (8.1) 0.7 – (0.1) (8.2) Working capital and provisions 5.6 0.5 1.1 – 0.1 7.3 (28.4) (20.4) 1.3 – (0.1) (47.6)

A deferred tax asset of £1.3m (2018: £1.5m) in relation to historic losses has not been recognised on the basis that there is insufficient certainty around the Group’s ability to utilise these losses to obtain tax relief going forwards. There are no unrecognised deferred tax liabilities in the current or prior year.

13 INVENTORIES

2019 2018 £m £m Raw materials and consumables 28.7 27.2 Work in progress 6.4 4.4 Finished goods and goods for resale 23.4 23.2 58.5 54.8

Inventories (being directly attributable costs of production) of £575.7m (2018: £511.5m) were expensed in the year.

14 TRADE AND OTHER RECEIVABLES

2019 2018 £m £m Trade receivables 127.9 124.5 Amounts due from associate and joint ventures (note 23) 8.7 3.8 Contract assets 14.2 17.5 Other receivables and prepayments 13.9 15.0 164.7 160.8 Non-current 3.8 – Current 160.9 160.8 164.7 160.8

114 BREEDON GROUP ANNUAL REPORT 2019 15 INTEREST-BEARING LOANS AND BORROWINGS

2019 2018 Net Debt £m £m Net debt comprises the following items: Cash and cash equivalents 23.8 37.6 Current borrowings (43.9) (31.2) Non-current borrowings (270.2) (317.1) Statutory net debt (290.3) (310.7) IFRS 16 adjustments 43.6 – Net debt excluding the impact of IFRS 16 (246.7) (310.7) FINANCIAL STATEMENTS

2019 2018 £m £m Current borrowings Secured bank loans 35.0 25.0 Lease liabilities (note 21) 8.9 6.2 43.9 31.2 Non-current borrowings Secured bank loans 230.6 311.9 Lease liabilities (note 21) 39.6 5.2 270.2 317.1

The Group’s banking facilities comprise a term loan of £125m (31 December 2018: £150m) and a multi-currency revolving credit facility of £350m (31 December 2018: £350m). Interest was paid on the facilities during the period at a margin of between 1.60 per cent and 2.05 per cent above LIBOR or EURIBOR according to the currency of borrowings. The facility is secured by a floating charge over the assets of the Company and its subsidiary undertakings. The term loan is repayable in three further annual instalments up to April 2022. The revolving credit facility is repayable in April 2022. On 8 January 2020 the Group exercised an £80m accordion option on the facilities following the announcement of the conditional agreement to acquire certain assets and operations of CEMEX in the UK (note 29).

BREEDONGROUP.COM 115 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

15 INTEREST-BEARING LOANS AND BORROWINGS CONTINUED

Reconciliation of cash flow movement to movement in net debt

2019 2018 £m £m For the year ended 31 December Net (decrease)/increase in cash and cash equivalents (12.7) 13.0 Net cash flow from movements in debt financing 82.1 (156.2) Recognised on adoption of IFRS 16 (47.0) – Lease additions and disposals (2.3) – Movement on bank arrangement fees (1.2) (1.0) Debt acquired via acquisitions (note 26) (0.4) (55.0) Foreign exchange differences 1.9 (1.7) Movement in net debt in the year 20.4 (200.9) Net debt as at 1 January (310.7) (109.8) Net debt as at 31 December (290.3) (310.7)

16 TRADE AND OTHER PAYABLES

2019 2018 £m £m Trade payables 91.7 97.2 Contract liabilities 3.8 3.2 Derivative liabilities 1.5 – Deferred consideration 4.2 – Other payables and accrued expenses 56.2 56.4 Other taxation and social security costs 20.5 20.7 177.9 177.5

116 BREEDON GROUP ANNUAL REPORT 2019 17 PROVISIONS

Restoration Other Total £m £m £m At 1 January 2018 25.7 3.0 28.7 Translation adjustment 0.1 – 0.1 Amounts arising from business combinations (note 26) 7.9 1.2 9.1 Utilised during the year (0.4) (0.9) (1.3) Charged to income statement 0.7 – 0.7 Unused amounts reversed (0.4) – (0.4) Unwinding of discount 1.5 0.1 1.6 At 31 December 2018 35.1 3.4 38.5 FINANCIAL STATEMENTS Translation adjustment (0.2) – (0.2) Reclassified to lease liabilities on adoption of IFRS 16 – (0.9) (0.9) Utilised during the year (0.7) (0.5) (1.2) Charged to income statement 0.4 – 0.4 Unused amounts reversed* (3.6) (0.1) (3.7) Unwinding of discount 1.7 0.1 1.8 At 31 December 2019 32.7 2.0 34.7 * Unused amounts reversed includes £2.7m in relation to changes made to capitalised restoration provisions (note 8).

2019 2018 £m £m Analysed as Current 2.5 2.3 Non-current 32.2 36.2 34.7 38.5

Restoration provisions principally comprise provisions for the cost of restoring and decommissioning sites where an obligation arises to comply with contractual, environmental, planning and other legislation. The obligation is calculated on a site-by-site basis and is regularly reviewed to ensure it is adequate. The obligation has been discounted to reflect the period over which it will be settled. Other provisions primarily comprise provisions for dilapidations.

BREEDONGROUP.COM 117 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

18 CAPITAL AND RESERVES Stated capital

Number of ordinary shares (m)

2019 2018 Issued ordinary shares at beginning of year 1,679.2 1,446.6 Issued in connection with: Acquisition of Lagan – 227.8 Exercise of savings-related share options 2.1 1.8 Vesting of Performance Share Plan awards 1.6 3.0 1,682.9 1,679.2

The Company has no limit to the number of shares which may be issued. The ordinary shares have no par value. All issued shares are fully paid. The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company. Movements during 2019: During 2019, the Company issued 2,104,951 ordinary shares of no par value raising £1.0m in connection with the exercise of certain savings-related share options. On 2 April 2019 and 8 April 2019, the Company issued 1,602,024 ordinary shares of no par value raising £Nil in connection with the vesting of awards under the Performance Share Plans (note 19). Movements during 2018: The Company issued 222,222,222 ordinary shares of no par value raising £170.0m on 19 April 2018, and on 14 May 2018 issued 5,542,967 ordinary shares of no par value raising £4.2m in connection with the acquisition of Lagan and the associated open offer. During 2018, the Company issued 1,839,813 ordinary shares of no par value raising £0.8m in connection with the exercise of certain savings-related share options. On 25 April 2018, the Company issued 2,973,726 ordinary shares of no par value raising £Nil in connection with the vesting of awards under the Performance Share Plans (note 19). Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedged instruments related to hedged transactions which have not yet occurred. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the Financial Statements of foreign operations as well as from the translation of the liabilities that hedge the Group’s net investment in foreign operations.

118 BREEDON GROUP ANNUAL REPORT 2019 19 EMPLOYEE BENEFITS Pension plans Various defined contribution pension schemes operate within the Group. These are accounted for on a contribution payable basis. The total cost charged to the income statement in respect of defined contribution pension schemes was £5.0m (2018: £4.0m). Contributions outstanding at 31 December 2019 amounted to £0.7m (2018: £0.7m) and are included in payables. Share-based payments An element of senior executive remuneration is provided in the form of Performance Share Plan awards. More details of these options and awards can be found in the Directors’ Remuneration report (pages 74 to 60). Employees are also invited to participate in the Breedon Sharesave scheme. The interests of the directors in both the Performance Share Plans and Breedon Sharesave scheme are disclosed in the Directors’ Report (pages 79 and 80). FINANCIAL STATEMENTS Performance Share Plan On 23 May 2011, the Group adopted the Breedon Aggregates Performance Share Plan (the PSP) as a means of attracting, rewarding, motivating and retaining certain key senior employees. Under the PSP, awards may be granted as conditional shares or as nil paid (or nominal) cost options. Awards will normally vest three years after grant subject to satisfaction of the relevant performance condition. Movements in the number of outstanding conditional awards of ordinary shares during the year were as follows:

Consideration Fair Value in payable on Outstanding at Outstanding at Date of Grant pence vesting Vesting period 1 Jan 2019 Granted Vested Lapsed 31 Dec 2019 April 2016 71.8 – 2016 to 2019 1,885,896 – (1,573,783) (312,113) – April 2017 75.3 – 2017 to 2020 2,107,790 – – – 2,107,790 April 2017 75.3 – 2017 to 2019 603,516 – (603,516) – – April 2017 75.3 – 2017 to 2020 266,376 – – (44,084) 222,292 April 2018 84.1 – 2018 to 2021 3,396,346 – – – 3,396,346 April 2019 69.2 – 2019 to 2022 – 4,509,100 – (66,606) 4,442,494 8,259,924 4,509,100 (2,177,299) (422,803) 10,168,922

The weighted average consideration payable upon vesting in respect of the conditional awards outstanding at 31 December 2019, and movements in conditional awards during the period was 0.0p (2018: 0.0p). The awards were valued using the Black-Scholes valuation model with key inputs as follows:

Date of grant April 2016 April 2017 April 2018 April 2019 Share price at date of grant 71.8p 75.3p 84.1p 69.2p Total awards at date of grant 2,006,023 3,649,414 3,396346 4,509,100 Expected volatility 24% 24% 22% 24% Risk-free rate 0.59% 0.10% 0.85% 0.80% Expected term 3 years 1-3 years 3 years 3 years Expected dividend yield 0% 0% 0% 0%

BREEDONGROUP.COM 119 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

19 EMPLOYEE BENEFITS CONTINUED Non-Employee Performance Share Plan On 3 March 2014, the Group adopted the Breedon Aggregates Non-Employee Performance Share Plan (the NEPSP) as a means of attracting, rewarding, motivating and retaining certain key persons who provide services to the Company, either as an individual or through a personal service company, and who are not otherwise an employee of any Group company. Under the NEPSP, awards may be granted as conditional shares or as nil paid (or nominal) cost options. Awards are subject to satisfaction of the relevant performance condition. Movements in the number of outstanding share options are as follows:

Fair Value Exercise price Vesting Outstanding at Outstanding at Date of Grant in pence in pence period 1 Jan 2019 Granted Exercised Lapsed 31 Dec 2019 April 2016 70.8 1.0 2016 to 2019 531,914 – (443,883) (88,031) – April 2017 74.3 1.0 2017 to 2020 529,801 – – (156,136) 373,665 April 2018 83.1 1.0 2018 to 2021 802,615 – – (510,422) 292,193 April 2019 68.2 1.0 2019 to 2022 – 1,014,479 – (971,900) 42,579 1,864,330 1,014,479 (443,883) (1,726,489) 708,437

The weighted average exercise price of share options outstanding at 31 December 2019, and movements in share options during the period was 1.0p (2018: 1.0p). The options were valued using the Black-Scholes valuation model with key inputs as follows:

Date of grant April 2016 April 2017 April 2018 April 2019 Share price at date of grant 71.8p 75.3p 84.1p 69.2p Total options at date of grant 531,914 529,801 802,615 1,014,479 Expected volatility 24% 24% 22% 24% Risk-free rate 0.59% 0.10% 0.85% 0.80% Expected term 3 years 3 years 3 years 3 years Expected dividend yield 0% 0% 0% 0%

Sharesave Schemes During the year, the Group operated savings-related share option schemes open to all employees both in the UK and RoI (the Breedon Sharesave Schemes). No invitations were made to the RoI Scheme in 2019. The number and weighted average exercise prices of options granted under the Breedon Sharesave Schemes are as follows: UK Sharesave Scheme

Fair Value Exercise price Outstanding at Outstanding at Date of Grant in pence in pence 1 Jan 2019 Granted Exercised Lapsed 31 Dec 2019 5 year option granted 2014 16.7 37.8 1,165,374 – (1,132,306) (17,195) 15,873 5 year option granted 2015 14.8 39.0 1,478,719 – (18,717) (120,508) 1,339,494 3 year option granted 2016 18.8 59.9 1,052,402 – (921,542) (115,845) 15,015 5 year option granted 2016 25.9 54.8 1,276,578 – (23,356) (162,220) 1,091,002 3 year option granted 2017 16.4 69.8 2,204,959 – – (526,039) 1,678,920 5 year option granted 2017 23.5 63.8 4,056,619 – (3,291) (792,757) 3,260,571 3 year option granted 2018 20.5 72.6 1,690,544 – – (561,780) 1,128,764 5 year option granted 2018 29.1 66.4 3,306,497 – (3,012) (802,809) 2,500,676 3 year option granted 2019 16.0 60.1 – 2,038,260 – (230,972) 1,807,288 5 year option granted 2019 22.0 55.0 – 2,954,089 (2,727) (402,208) 2,549,154 16,231,692 4,992,349 (2,104,951) (3,732,333) 15,386,757

120 BREEDON GROUP ANNUAL REPORT 2019 19 EMPLOYEE BENEFITS CONTINUED Sharesave Schemes CONTINUED UK Sharesave Scheme CONTINUED The weighted average exercise price of share options outstanding at 31 December 2019 was 60.8p (2018: 61.0p). The weighted average exercise prices of share options granted, exercised and lapsed in the year to 31 December 2019 were 57.1p, 47.8p and 63.9p, respectively (2018: 68.6p, 37.3p and 63.3p, respectively). The fair value of services received in return for share options granted is measured based on a Black-Scholes valuation model using the following assumptions in respect of options granted in the current and prior year:

3 year options 5 year options 3 year options 5 year options Granted 2018 Granted 2018 Granted 2019 Granted 2019 Share price at date of grant 84.0p 84.0p 67.7p 67.7p FINANCIAL STATEMENTS Total options at date of grant 1,904,148 3,513,419 2,038,260 2,954,089 Expected volatility 22.1% 24.0% 23.9% 23.9% Risk-free rate 0.92% 1.18% 0.66% 0.76% Option life 3 years 5 years 3 years 5 years Expected dividend yield 0% 0% 0% 0%

RoI Sharesave Scheme

Fair Value Exercise price Outstanding at Outstanding at Date of Grant in pence in pence 1 Jan 2019 Granted Exercised Lapsed 31 Dec 2019 3 year option granted 2018 16.2 64.9 226,729 – – (5,351) 221,378 5 year option granted 2018 23.5 59.4 1,080,522 – – (303,468) 777,054 1,307,251 – – (308,819) 998,432

The weighted average exercise price of share options outstanding at 31 December 2019 was 60.6p (2018: 60.4p). The weighted average exercise prices of share options granted and lapsed in the year to 31 December 2019 were nil and 59.5p respectively (2018: 60.3p and 59.4p respectively). The fair value of services received in return for share options granted is measured based on a Black-Scholes valuation model using the following assumptions in respect of options granted in the current year:

3 year options 5 year options Granted 2018 Granted 2018 Share price at date of grant 74.2p 74.2p Total options at date of grant 226,729 1,107,103 Expected volatility 22.1% 24.0% Risk-free rate 0.92% 1.18% Option life 3 years 5 years Expected dividend yield 0% 0%

BREEDONGROUP.COM 121 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

20 FINANCIAL INSTRUMENTS The Group has exposure to the following risks from its use of financial instruments: • Credit risk • Foreign exchange risk • Liquidity risk • Interest rate risk This note presents information about the Group’s exposure to each of the above risks and the Group’s objectives, policies and processes for measuring and managing these risks. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their role and obligations. Treasury activities are managed on a Group basis under policies and procedures approved and monitored by the Board. These are designed to reduce the financial risks faced by the Group. Where appropriate, the Group uses financial instruments to manage these risks. No speculative use of derivatives, currency or other instruments is permitted. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises from cash and cash equivalents, derivative financial instruments and, principally, from the Group’s receivables from customers. Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. The Group has credit insurance covering the majority of its private sector customers. At the reporting date, there were no significant concentrations of credit risk. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Carrying amount

2019 2018 £m £m Trade and other receivables 164.7 160.8 Cash and cash equivalents 23.8 37.6 188.5 198.4

Credit risk associated with cash balances is managed by transacting with financial institutions with high-quality credit ratings. Accordingly, the Group’s associated credit risk is limited. The maximum exposure to credit risk for trade receivables, contract assets, and amounts due from associate and joint ventures at the reporting date, by reportable segment, was:

Carrying amount

2019 2018 (restated) £m £m Great Britain 98.5 96.7 Ireland 33.3 30.3 Cement 19.0 18.8 150.8 145.8 This note has been restated to include amounts due from associate and joint ventures.

122 BREEDON GROUP ANNUAL REPORT 2019 20 FINANCIAL INSTRUMENTS CONTINUED Exposure to credit risk CONTINUED Management considers that the credit quality of the various receivables is good in respect of the amounts outstanding. The Group has no individually significant customers. The majority of the Group’s customers are end-user customers. The Group’s credit insurance covers the majority of its private sector UK and Ireland trade receivables subject to an aggregate first loss. The Group has fully provided for all its doubtful debt exposure. The remaining credit risk is therefore considered to be low. The ageing of trade receivables, contract assets and amounts due from associate and joint ventures at the reporting date was:

2019 2018 (restated)

Gross Impairment Net Gross Impairment Net £m £m £m £m £m £m

Not past due 129.9 (0.9) 129.0 127.2 (1.4) 125.8 FINANCIAL STATEMENTS Past due 0-30 days 16.3 (0.6) 15.7 11.5 (0.6) 10.9 Past due 31-60 days 5.5 (0.5) 5.0 6.3 (0.2) 6.1 Past due more than 60 days 5.1 (4.0) 1.1 5.7 (2.7) 3.0 156.8 (6.0) 150.8 150.7 (4.9) 145.8 This note has been restated to include amounts due from associate and joint ventures.

Provisions for impairment of trade receivables are calculated on an ‘expected loss’ model in line with IFRS 9. Movements during the year were as follows:

2019 2018 £m £m At 1 January 4.9 2.4 Amounts arising from business combinations (note 26) 0.1 2.8 Charged to the Consolidated Income Statement during the year 2.0 1.0 Utilised during the year (0.8) (0.9) Unused amounts released (0.2) (0.4) At 31 December 6.0 4.9

Foreign exchange risk Transactional The Group has limited transactional currency exposures arising on sales and purchases made in currencies other than the functional currency of the entity making the sale or purchase. Significant exposures which are deemed at least highly probable are matched where possible, but the remaining transactional risk is not generally mitigated. Translation The Group has significant net assets located in RoI which are denominated in Euro. The translation of these balances into Sterling for reporting purposes exposes the Group to foreign exchange movements in the Consolidated Statement of Financial Position and Consolidated Income Statement, along with a corresponding impact on certain key performance indicators. The Group’s strategy is to mitigate this risk through utilising its Euro borrowings, which form part of its multi-currency revolving facility, as a hedge against movements in the Sterling value of its Euro investments. The level of this hedge is currently managed with the objective of mitigating the impact of foreign exchange movements on Leverage. The carrying amount of the Group’s interest-bearing borrowings denominated in foreign currency is as follows.

2019 2018 £m £m Sterling 275.1 280.2 Euro 39.0 68.1 314.1 348.3

BREEDONGROUP.COM 123 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

20 FINANCIAL INSTRUMENTS CONTINUED Significant exchange rates The following significant exchange rates applied during the year:

2019 2018

Average rate Year-end rate Average rate Year-end rate Sterling/Euro 1.14 1.18 1.13 1.11

Exchange rate sensitivity A 10 per cent strengthening of Sterling against the following currencies would have decreased equity and profit before tax by the amounts shown below. This analysis assumes that all other variables, including interest rates, remain constant:

2019 2018

Profit Equity Profit Equity £m £m £m £m Euro 2.0 29.2 1.6 21.1

Liquidity risk Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due. The Group manages liquidity risk by continuously monitoring forecasts and cash flows and negotiating appropriate bank facilities. The Group uses term and revolving bank facilities and sufficient headroom is maintained above peak requirements to meet unforeseen events. The following are the contractual maturities of financial liabilities, including estimated interest payments based on current utilisation:

Carrying Contractual Within Two to More than amount cash flows one year five years five years 31 December 2019 £m £m £m £m £m Non–derivative financial liabilities Multi–currency revolving credit facility – Sterling 105.0 110.8 2.5 108.3 – – Euro 38.3 39.7 0.6 39.1 – Term loan – Sterling 125.0 129.2 37.4 91.8 – Prepaid bank arrangement fees (2.7) – – – – Lease liabilities 48.5 69.4 10.7 21.2 37.5 Other financial liabilities 185.5 185.6 183.5 2.1 – 499.6 534.7 234.7 262.5 37.5

Carrying Contractual Within Two to More than amount cash flows one year five years five years 31 December 2018 £m £m £m £m £m Non–derivative financial liabilities Multi–currency revolving credit facility – Sterling 125.0 135.6 3.2 132.4 – – Euro 65.8 69.7 1.2 68.5 – Term loan – Sterling 150.0 158.4 28.4 130.0 – Prepaid bank arrangement fees (3.9) – – – – Lease liabilities 11.4 11.9 6.6 5.1 0.2 Other financial liabilities 184.8 184.8 184.8 – – 533.1 560.4 224.2 336.0 0.2

The capital element of the multi-currency revolving credit facility is repayable in April 2022. The term loan is repayable in annual instalments between April 2020 and April 2022.

124 BREEDON GROUP ANNUAL REPORT 2019 20 FINANCIAL INSTRUMENTS CONTINUED Interest rate risk The Group currently borrows at floating and fixed interest rates. The Group uses interest rate caps to manage its exposure to changes in floating interest rates. The Group has an interest rate cap covering £150m (2018: £150m) of debt which caps interest rates (excluding margins) at 3.0 per cent (2018: 3.0 per cent). The Group classifies interest rate caps as cash flow hedges and states them at fair value. The fair value of the cap at 31 December 2019 was £Nil (2018: £Nil). At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:

2019 2018 £m £m Fixed rate instruments Financial liabilities (48.5) (11.4) FINANCIAL STATEMENTS Variable rate instruments Financial liabilities* (265.6) (336.9) Financial assets 23.8 37.6 (290.3) (310.7) * Variable rate financial liabilities include £150m (2018: £150m) of debt subject to an interest rate cap (see above). Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss. Cash flow sensitivity analysis for variable rate instruments An increase of 100 basis points in interest rates in respect of variable rate instruments at reporting date values would decrease equity and income and expenditure for a full year by £2.4m (2018: £3.0m). A decrease of 100 basis points would have increased equity and income and expenditure on the same basis by £2.4m (2018: £3.0m). These analyses assume that all other variables remain constant. Fair values versus carrying amounts The directors consider that the carrying amounts recorded in the financial information in respect of financial assets and liabilities, which are carried at amortised cost, approximates to their fair values. Derivative financial assets and liabilities are carried at fair value. The different levels have been defined as follows: • Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities • Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either as a direct price or indirectly derived from prices • Level 3 – inputs for the asset or liability that are not based on observable market data The fair value of the derivative financial assets and liabilities are based on bank valuations. Capital management The Board’s policy is to maintain a strong balance sheet, providing flexibility to pursue growth opportunities. The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowing and the advantages and security afforded by a sound capital position. The financial covenants associated with the Group’s borrowings are a maximum Leverage ratio and a minimum interest cover. The Group complied with its covenants at 31 December 2019 and 31 December 2018. Historically, the main focus of the Group has been on delivering capital growth for shareholders, but recognising the Group’s scale, level of maturity and cash generation, the directors propose to adopt a progressive dividend policy from 2021. The directors intend to target a level of distribution, as a percentage of Underlying basic EPS, that will move the pay-out ratio into line with Breedon’s peers over a three-year period.

BREEDONGROUP.COM 125 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 LEASES Lease liabilities are secured on the assets to which they relate and are payable as follows:

2019 (IFRS 16) 2018 (IAS 17)

Minimum Minimum lease lease payments Interest Principal payments Interest Principal £m £m £m £m £m £m Less than one year 10.7 1.8 8.9 6.5 0.3 6.2 Between one and five years 21.2 5.9 15.3 5.2 0.2 5.0 More than five years 37.5 13.2 24.3 0.2 – 0.2 69.4 20.9 48.5 11.9 0.5 11.4

The value of lease payments made during the year was £15.5m (2018: £7.8m in respect of finance lease liabilities, and £10.1m in respect of operating leases).

22 CAPITAL COMMITMENTS At 31 December 2019, the Group had commitments to purchase property, plant and equipment for £10.0m (2018: £4.6m). These commitments are expected to be settled in the following financial year.

23 RELATED PARTIES During the year, the Group supplied services and materials to, and purchased services and materials from, its associate and joint ventures on an arm’s length basis. It had the following transactions with these related parties during the year:

Sales Purchases Receivables Payables £m £m £m £m 2019 BEAR Scotland Limited 33.7 – 3.7 – Other 3.2 1.1 5.0 – 36.9 1.1 8.7 – 2018 BEAR Scotland Limited 29.8 0.4 3.2 – Other 4.8 0.6 0.6 – 34.6 1.0 3.8 –

During the year, the Group also supplied services to, and purchased services from its 75 per cent owned subsidiary undertaking on an arm’s length basis. It had the following transactions with this related party during the year which have been fully eliminated on consolidation.

Sales Purchases Receivables Payables £m £m £m £m 2019 Alba Traffic Management Limited 1.0 0.1 0.1 – 2018 Alba Traffic Management Limited 1.4 0.2 – –

126 BREEDON GROUP ANNUAL REPORT 2019 23 RELATED PARTIES CONTINUED Parent and ultimate controlling party The Company is listed on AIM and monitors its shareholder base on a regular basis. There is no controlling party. Transactions with directors and directors’ shareholdings Details of transactions with directors, directors’ shareholdings and outstanding share options and awards are given in the Directors’ Remuneration report and the Directors’ Report on pages 69 to 76 and 79 to 81 respectively.

24 EARNINGS PER SHARE 2019 2018

Weighted Weighted average number Per share average number Per share Earnings of shares amount Earnings of shares amount FINANCIAL STATEMENTS £m (millions) (pence) £m (millions) (pence) Statutory Basic earnings per ordinary share Total earnings attributable to ordinary shareholders 77.9 1,681.584 4.64 64.5 1,609.183 4.01 Effect of dilutive items Share-based payments – 3.241 (0.01) – 5.526 (0.02) Diluted earnings per ordinary share 77.9 1,684.825 4.63 64.5 1,614.709 3.99 Underlying* Basic earnings per ordinary share Underlying earnings attributable to ordinary shareholders 85.2 1,681.584 5.08 75.7 1,609.183 4.70 Effect of dilutive items Share-based payments – 3.241 (0.01) – 5.526 (0.02) Diluted earnings per ordinary share 85.2 1,684.825 5.07 75.7 1,614.709 4.68 * Non-underlying items represent acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items.

Details of the Group’s share schemes, which may become dilutive in the future, are set out in note 19.

25 CONTINGENT LIABILITIES The Group has guaranteed its share of the banking facilities of BEAR Scotland, the Company’s associated undertaking. The maximum liability at 31 December 2019 amounted to £1.8m (2018: £1.8m). The Group has also guaranteed the performance of BEAR Scotland’s contracts in respect of the maintenance of trunk roads in the North West and North East of Scotland and in respect of the M80 Operating and Maintenance contract.

BREEDONGROUP.COM 127 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

26 ACQUISITIONS Current year acquisition On 1 October 2019, the Group completed the acquisition of Roadway. The fair value of the consideration paid and the consolidated net assets acquired, together with the goodwill arising in respect of this acquisition was as follows:

Fair value Fair value on Book value adjustments acquisition £m £m £m Intangible assets – 4.9 4.9 Property, plant and equipment 1.5 2.1 3.6 Inventories 0.1 – 0.1 Trade and other receivables 1.5 – 1.5 Cash 4.4 – 4.4 Trade and other payables (1.7) – (1.7) Interest-bearing loans and borrowings – (0.4) (0.4) Deferred tax liabilities (0.3) (1.2) (1.5) Total 5.5 5.4 10.9 Consideration – cash 13.3 Consideration – deferred consideration 4.2 Goodwill arising 6.6

The fair value adjustments primarily comprised adjustments to: • recognise £4.9m of acquired customer-related intangible assets; • revalue certain items of property, plant and equipment; • recognition of right-of-use assets and lease liabilities in line with IFRS 16 - Leases; and • deferred tax balances. The goodwill arising represents anticipated synergies, the potential for future growth, the strategic geographic location of the assets acquired and the skills of the existing workforce.

Impact of current year acquisition Income statement During the year, this acquisition contributed revenues of £1.6m and Underlying EBIT of £0.1m to the Group. If this acquisition had occurred on 1 January 2019, the results of the Group for the year ended 31 December 2019 would have shown revenue of £933.1m and Underlying EBIT of £117.7m. Cash flow The cash flow effect of this acquisition can be summarised as follows:

£m Consideration paid 13.3 Cash acquired with the business (4.4) Net cash consideration shown in the Consolidated Statement of Cash Flows 8.9

Acquisition costs The Group incurred acquisition related costs of £3.3m (2018: £6.4m) in the year relating principally to external professional fees and due diligence costs in relation to the current year acquisition of Roadway, the investment in Capital Concrete (note 11), and anticipated acquisition of certain CEMEX assets and operations (note 29). These have been included as non-underlying administrative costs (note 3).

128 BREEDON GROUP ANNUAL REPORT 2019 26 ACQUISITIONS CONTINUED Prior year acquisitions In 2018 the Group completed the following acquisitions and asset swaps which were accounted for as business combinations: • Acquisition of Staffs Concrete (3 April 2018) • Acquisition of Lagan (20 April 2018) • Acquisition of Blinkbonny (1 June 2018) • Asset swap with Tarmac (1 July 2018) No adjustments have been made in respect of these acquisitions within the measurement period, and the provisional fair values reported in the prior year are now considered final. Lagan FINANCIAL STATEMENTS The fair value of the consideration paid and the consolidated net assets acquired, together with the goodwill arising in respect of this acquisition were as follows:

Fair value Fair value on Book value adjustments acquisition £m £m £m Intangible assets 13.5 42.6 56.1 Share of joint ventures 0.2 0.7 0.9 Property, plant and equipment 115.0 59.5 174.5 Inventories 20.7 0.8 21.5 Trade and other receivables 59.8 (0.3) 59.5 Cash 18.8 – 18.8 Trade and other payables (55.6) (0.5) (56.1) Interest-bearing loans and borrowings (54.9) – (54.9) Provisions (2.3) (5.9) (8.2) Deferred tax liabilities (2.2) (16.3) (18.5) Total 113.0 80.6 193.6 Consideration – cash 413.7 Consideration – deemed proceeds from stepped acquisition of Breedon Whitemountain Ltd 2.3 Goodwill arising 222.4

The fair value adjustments primarily comprised adjustments to: • eliminate the £13.5m of pre-existing goodwill which comprised the book values of intangible assets in the opening balance sheet; • recognise intangible assets, including the value of acquired customer-related intangibles, brand, permits and emissions assets; • revalue certain items of property, plant and equipment, including the Lagan cement plant at Kinnegad and the acquired mineral reserves and resources to reflect the fair value at date of acquisition; • working capital accounts to reflect fair value; • restoration provisions to reflect costs to comply with environmental, planning and other legislation; and • deferred tax balances. The goodwill arising represents anticipated synergies, the potential for future growth, the strategic geographic location of the assets acquired and the skills of the existing workforce and management team.

BREEDONGROUP.COM 129 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

26 ACQUISITIONS CONTINUED Prior year acquisitions CONTINUED Other prior year acquisitions The directors consider the acquisitions made in the previous year – excluding Lagan – to be individually immaterial, but material in aggregate. The combined fair value of the consideration paid and the consolidated net assets acquired, together with the goodwill arising in respect of these acquisitions were as follows:

Fair value Fair value on Book value adjustments acquisition £m £m £m Property, plant and equipment 19.6 1.8 21.4 Inventories 1.0 0.1 1.1 Trade and other receivables 1.1 – 1.1 Cash 1.1 – 1.1 Trade and other payables (0.7) – (0.7) Interest-bearing loans and borrowings (0.1) – (0.1) Provisions (0.8) (0.1) (0.9) Deferred tax liabilities (1.6) (0.3) (1.9) Total 19.6 1.5 21.1 Consideration – cash 12.5 Consideration – fair value of assets and liabilities transferred to Tarmac 10.4 Goodwill arising 1.8

The fair value adjustments primarily comprised adjustments to: • revalue certain items of property, plant and equipment – mineral reserves and resources – to reflect fair value at the point of acquisition; • working capital accounts to reflect fair value; • restoration provisions to reflect costs to comply with environmental, planning and other legislation; and • deferred tax balances. The goodwill arising represents anticipated synergies, the potential for future growth, the strategic geographic location of the assets acquired and the skills of the existing workforce. The value of assets and liabilities transferred to Tarmac by way of consideration comprised the following items:

Fair value Fair value on Book value adjustments disposal £m £m £m Goodwill 7.9 – 7.9 Property, plant and equipment 2.5 – 2.5 Total 10.4 – 10.4

130 BREEDON GROUP ANNUAL REPORT 2019 27 ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial information are described below: Accounting estimates Discount rate used in calculating right-of-use assets and lease liabilities

Right-of-use assets and lease liabilities arise where the Group enters into an arrangement which meets the FINANCIAL STATEMENTS definition of a lease set out in IFRS 16 – Leases. These are calculated by discounting any future lease payments at the ‘incremental borrowing rate’, being the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of use asset in a similar economic environment. As permitted by the Standard, the Group applies a single discount rate to portfolios of leases which have similar characteristics. Judgement is required in identifying which leases have similar characteristics, and therefore how many discount rates the Group is required to calculate. Additionally, although the Group seeks to reduce estimation risk through the use of available external market data to calculate appropriate incremental borrowing rates, the calculation is still subject to a level of estimation. The rates used on 1 January as part of the initial application of IFRS 16 – Leases range from 4.4 per cent to 6.5 per cent dependent on the nature of the asset and length of the lease. A 1.0 per cent increase or decrease in the discount rates applied on 1 January would result in a decrease of £2.8m or an increase of £3.2m respectively to the right-of-use assets and liabilities recognised, and a decrease of £0.1m or an increase of £0.1m respectively to profit before taxation for the year ended 31 December 2019. Restoration provisions Restoration provisions principally comprise provisions for the cost of restoring and decommissioning sites where an obligation arises to comply with contractual, environmental, planning and other legislation. This is an inherently subjective calculation. Estimated future cash flows have been determined on a site by site basis based on the present day cost of restoration. There is significant estimation required to determine the exact cost of the restoration work. An increase in these gross cash flow assumptions of 10 per cent would result in an increase of the restoration liability of £3.5m. These cash flows are subject to expert evaluation in order to mitigate the risk of material error. These cash flows are then inflated to the point that the cash flow is expected to occur and discounted at a rate which reflects both the time value of money and the risk specific to the restoration liability in order to derive the net present value of the obligation as at the year-end. Restoration dates have been determined as the earlier of the date at which reserves are expected to be exhausted or planning permission on reserves is expected to expire, which fall over the next 25 years. Reasonably possible changes in assumptions around these estimates would not have a material impact on the Financial Statements, and management do not consider these to be significant estimates.

BREEDONGROUP.COM 131 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

27 ACCOUNTING ESTIMATES AND JUDGEMENTS CONTINUED Accounting judgements Mineral reserves and resources Mineral reserves and resources are the principal asset available to the Group. As at 31 December 2019, these had a carrying value of £199.7m. These mineral assets of the Group are spread over around 80 quarries, which equates to an average value of £2.5m per quarry (2018: £199.6m spread over around 80 quarries). Mineral reserves and resources are acquired either in the normal course of business or through business combinations. Those which are acquired in the normal course of business are held at historic cost on initial recognition. When mineral assets arise through business combinations, these are initially recognised at fair value as part of the acquisition accounting under IFRS 3. Subsequent to initial recognition, mineral assets are held at amortised cost and are expensed to reflect their use over time through an annual depletion charge. Mineral assets are subject to impairment testing if impairment triggers are identified, which include elements outside of the Group’s control. This includes a range of factors outside of the Group’s control such as changes in the planning and regulatory environment, geological and archaeological factors. The identification of impairment triggers therefore requires the Group to exercise judgement. The most significant area of judgement is in respect of the likelihood of obtaining planning permission for those quarries where the existing permission is due to expire before all of the reserves and resources which have been recognised on balance sheet have been extracted.

28 RECONCILIATION TO NON-GAAP MEASURES A number of non-GAAP performance measures are used throughout this Annual Report and these Financial Statements. This note provides a reconciliation between these alternative performance measures to the most directly related statutory measures. Reconciliation of earnings based alternative performance measures

Central Share of profit administration of associate and Great Britain Ireland Cement and eliminations joint ventures Total 2019 £m £m £m £m £m £m Profit from operations 108.6 Non-underlying items (note 3) 8.0 Underlying EBIT 62.8 26.8 36.3 (10.9) 1.6 116.6 Underlying EBIT margin* 10.2% 13.3% 19.5% 12.5% Underlying EBIT 62.8 26.8 36.3 (10.9) 1.6 116.6 Share of profit of associate and joint ventures – – – – (1.6) (1.6) Depreciation and depletion 35.6 7.0 22.5 0.1 – 65.2 Underlying EBITDA 98.4 33.8 58.8 (10.8) – 180.2

Central Share of profit administration of associate and Great Britain Ireland Cement and eliminations joint ventures Total 2018 £m £m £m £m £m £m Profit from operations 91.7 Non-underlying items (note 3) 11.8 Underlying EBIT 61.4 20.9 31.4 (11.9) 1.7 103.5 Underlying EBIT margin* 10.1% 13.4% 17.8% 12.0% Underlying EBIT 61.4 20.9 31.4 (11.9) 1.7 103.5 Share of profit of associate and joint ventures – – – – (1.7) (1.7) Depreciation and depletion 30.8 4.5 17.2 0.1 – 52.6 Underlying EBITDA 92.2 25.4 48.6 (11.8) – 154.4

* Underlying EBIT margin is calculated as Underlying EBIT divided by revenue.

132 BREEDON GROUP ANNUAL REPORT 2019 28 RECONCILIATION TO NON-GAAP MEASURES CONTINUED Free cash flow 2019 2018 £m £m Underlying EBIT 116.6 103.5 Depreciation 65.2 52.6 (Increase)/decrease in trade and other receivables (0.8) 13.5 Increase in inventories (5.7) (0.6) Decrease in trade and other payables (1.8) (0.2) Decrease in provisions (2.0) (1.3)

Share of profit of associate and joint ventures (1.6) (1.7) FINANCIAL STATEMENTS Share-based payments 1.6 2.9 Dividends from associate and joint ventures 0.8 0.4 Dividend paid to non-controlling interests (0.2) (0.1) Income taxes paid (18.1) (16.5) Interest paid (8.4) (8.9) Interest element of lease payments (2.6) (0.4) Purchase of property, plant and equipment (56.3) (48.6) Proceeds from the sale of property, plant and equipment 3.3 4.9 Free cash flow 90.0 99.5

Return on invested capital 2019 2018 £m £m Underlying EBIT 116.6 103.5 Underlying effective tax rate 16.9% 17.3% Taxation at the Group’s underlying effective rate (19.7) (17.9) Underlying earnings before interest 96.9 85.6

Net assets 839.1 773.3 Net debt (note 15) 290.3 310.7 Invested capital at 31 December 1,129.4 1,084.0 Average invested capital* 1,106.7 860.9 Return on invested capital** 8.8% 9.9%

* Average invested capital is calculated by taking the average of the opening invested capital at 1 January and the closing invested capital at 31 December. Opening invested capital at 1 January 2018 was £637.9m. ** Return on invested capital is calculated as Underlying earnings before interest, divided by average invested capital for the year.

BREEDONGROUP.COM 133 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED

28 RECONCILIATION TO NON-GAAP MEASURES CONTINUED Leverage 2019 2018 £m £m Underlying EBITDA 180.2 154.4

Net debt (note 15) 290.3 310.7

Leverage* 1.6x 2.0x * Leverage is calculated as the ratio of Underlying EBITDA to net debt.

29 SUBSEQUENT EVENTS On 8 January 2020 the Group entered into a conditional agreement with CEMEX to acquire certain assets and operations in the UK for a total consideration of £178m on a cash and debt free basis. Completion of the transaction is anticipated in the second quarter of 2020. The cash consideration is due on completion and will be financed by the Group’s existing £350m revolving credit facility and a drawdown of £80m through exercise of an accordion option.

134 BREEDON GROUP ANNUAL REPORT 2019 should beamalgamated. holdings shouldwrite to theRegistrar givingdetailsoftheaccounts concerned andinstructions onhow they account intheirnameontheCompany’s Register ofMembers.Any shareholder wishingto amalgamate such Shareholders whoreceive more thanonecopy ofcommunications from theCompany may have more thanone MULTIPLE ACCOUNTS • • • • The Group hasawiderange ofinformation that isavailable onourwebsite including: shareholder documents from theCompany. Investors whoholdtheirshares via anintermediary shouldcontact theintermediary regarding thereceipt of If you have notalready registered your current emailaddress, you candosoat www.signalshares.com. Shareholders cancontinue to receive hard copies ofshareholder documents by contacting theRegistrar. that isrecorded ontheRegister ofMembersnotifyingthemthat thedocuments are available onthewebsite. email address andhave notelected to receive documents inhard copy, aletter willbeposted to theiraddress address whensuchdocuments are available onthewebsite. Ifshareholders have notprovided anup-to-date such documents. Ifashareholder hasregistered theirup-to-date emailaddress, anemail willbesentto that available viatheCompany’s website, unless ashareholder hasrequested to continue to receive hard copies of Shareholder documents are now, following changesincompany law andshareholder approval, primarilymade The Company’s share price (15minutes delay) isdisplayed ontheCompany’s website. the Company. operates aservice whereby you canregister to receive notice by emailofallannouncements released by The 2019AnnualReport andotherinformation abouttheCompany are available onitswebsite. The Company GROUP WEBSITEANDELECTRONIC COMMUNICATIONS code, whichcanbefound onyour share certificate. dividend payments. To register for SignalShares just visitwww.signalshares.com. Allyou needisyour investor price andvaluation, checkyour holdingbalance andtransactions, changeyour address orbankdetailsandview Registering ontheRegistrar’s share portalenablesyou to view your shareholding, includinganindicative share Online: www.linkassetservices.com By email:[email protected] public holidays inEnglandandWales. at theapplicableinternational rate. The helplineisopenbetween 9.00am–5.30pm,Monday to Friday excluding are outsidetheUnited Kingdom,pleasecall+443716640300.CallsoutsidetheUnited Kingdomwillbecharged By telephone: 03716640300.Callsare charged at thestandard geographic rate andwillvary by provider. Ifyou By post: LinkAsset Services, The Registry, 34Beckenham Road, Beckenham, Kent BR34TU. if available, thefullshareholder reference number: instance, bedirected to theCompany’s Registrar andclearlystate theshareholder’s registered address and, ownership ordividendpayments andrequests to receive corporate documents by email should,inthefirst All administrative enquiriesrelating to shareholdings, suchaslost certificates, changesofaddress, changeof REGISTRAR SHAREHOLDER INFORMATION ADDITIONAL INFORMATION press releases –bothcurrent andhistorical. shareholder services information; and share price information; finance information –annual reports andhalf year results, financial news and events; BREEDONGROUP.COM 135

ADDITIONAL INFORMATION ADDITIONAL INFORMATION SHAREHOLDER INFORMATION CONTINUED

UNSOLICITED MAIL, INVESTMENT ADVICE AND FRAUD The Company is obliged by law to make its share register publicly available and, as a consequence, some shareholders may receive unsolicited mail. In addition, many companies have become aware that their shareholders have received unsolicited phone calls or correspondence, typically from overseas ‘brokers’, concerning investment matters. These callers can be very persistent and extremely persuasive and their activities have resulted in considerable losses for some investors. It is not just the novice investor that has been deceived in this way; many victims have been successfully investing for several years. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports. Please keep in mind that firms authorised by the FCA are unlikely to contact you out of the blue with an offer to buy or sell shares. If you receive any unsolicited mail or investment advice: • Make sure you get the correct name of the person and organisation. • Check the Financial Services Register at www.fca.org.uk. • Use the details on the Financial Services Register to contact the firm. • Call the FCA Consumer Helpline on 0800 111 6768 if there are no contact details on the Register or you are told they are out of date. • Beware of fraudsters claiming to be from an authorised firm, copying its website or giving you false contact details. • Use the firm’s contact details listed on the Register if you want to call them back. • Search the list of unauthorised firms and individuals to avoid doing business with at www.fca.org.uk/scams. • Report a share scam by telling the FCA using the share fraud reporting form in the Consumers section of the FCA website. • If the unsolicited phone calls persist, hang up. • If you wish to limit the number of unsolicited calls you receive, contact the Telephone Preference Service (TPS) at www.tpsonline.org.uk and follow the link, or from your mobile phone register your mobile number, free of charge, by texting “TPS” together with your email address to 85095. • If you wish to limit the amount of unsolicited mail you receive, contact the Mailing Preference Service on 020 7291 3310 or visit the website at www.mpsonline.org.uk. If you deal with an unauthorised firm, you will not be eligible to receive payment under the Financial Services Compensation Scheme. If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.

SHARE DEALING SERVICES You can buy shares through any authorised stockbroker or bank that offers a share dealing service in the UK, or in your country of residence if outside the UK. A simple and competitively priced service to buy and sell shares is provided by Link Asset Services. There is no need to pre-register and there are no complicated application forms to fill in and by visiting www.linksharedeal.com you can also access a wealth of stock market news and information free of charge. For further information on this service, or to buy and sell shares visit www.linksharedeal.com or call 0371 664 0445. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 8.00am – 4.30pm, Monday to Friday excluding public holidays in England and Wales. This is not a recommendation to buy and sell shares and this service may not be suitable for all shareholders. The price of shares can go down as well as up and you are not guaranteed to get back the amount you originally invested. Terms, conditions and risks apply. Link Asset Services is a trading name of Link Market Services Trustees Limited which is authorised and regulated by the Financial Conduct Authority. This service is only available to private shareholders resident in the European Economic Area, the Channel Islands or the Isle of Man. Link Asset Services is a trading name of Link Market Services Limited and Link Market Services Trustees Limited. Share registration and associated services are provided by Link Market Services Limited (registered in England and Wales, No. 2605568). Regulated services are provided by Link Market Services Trustees Limited (registered in England and Wales No. 2729260), which is authorised and regulated by the Financial Conduct Authority. The registered office of each of these companies is The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.

136 BREEDON GROUP ANNUAL REPORT 2019 public holidays inEnglandandWales. the applicableinternational rate. The helplineisopenbetween 9.00am–5.30pm,Monday to Friday excluding outside theUnited Kingdom,pleasecall+443716640300.CallsoutsidetheUnited Kingdomwillbecharged at Telephone: 03716640300.Callsare charged at thestandard geographic rate andwillvary by provider. Ifyou are Email: [email protected] SHAREHOLDER COMMUNICATION Up to 99,999,999,999 Up to 500,000 Up to 100,000 Up to 50,000 Up to 10,000 Up to 5,000 Up to 500 Analysis ofshareholdings at 31December 2019 2020 (or notless than48hoursbefore thetimefixed for any adjournedmeeting). Electronic proxy appointmentsmust bereceived by theCompany’s Registrar nolater than2.00pmon19April Shareholders cansubmitproxies for the2020AGM electronically by loggingonto www.signalshares.com. ELECTRONIC VOTING Number of Number of accounts 2,349 164 100 331 211 515 966 62 total accounts Percentage of Percentage of 100.00 14.09 21.92 41.12 6.99 4.26 2.64 8.98

1,682,957,809 1,643,583,122 BREEDONGROUP.COM 24,940,618 4,361,753 7,282,011 1,584,606 Number of Number of 904,346 301,353 shares

Percentage of Percentage of total shares 100.00 97.67 1.48 0.26 0.43 0.09 0.05 0.02 137

ADDITIONAL INFORMATION ADDITIONAL INFORMATION ADVISERS AND COMPANY INFORMATION

COMPANY INFORMATION INDEPENDENT AUDITOR CONTACT Registered in Jersey KPMG LLP If you require information Company number 98465 One Snowhill regarding Breedon Group, please contact: Snow Hill Queensway REGISTERED OFFICE Breedon Group Birmingham 28 Esplanade Pinnacle House B4 6GH St Helier Breedon on the Hill Jersey ADVISERS Derby JE2 3QA Nominated adviser: DE73 8AP COMPANY SECRETARY Cenkos Securities plc JTC (Jersey) Limited 6.7.8 Tokenhouse Yard Tel: 01332 694010 28 Esplanade London Fax: 01332 694445 St Helier EC2R 7AS E-mail: [email protected] Website: www.breedongroup.com Jersey LEGAL ADVISER JE2 3QA Carey Olsen 47 Esplanade St Helier Jersey JE1 0BD

138 BREEDON GROUP ANNUAL REPORT 2019 GHG GCCA GB GAAP FRC FCF FCA EURIBOR ESOS ESG EPS EBIT Division CPA CLP CITB CEMEX CDP Capital Concrete Brett Whitemountain Breedon Breedon BMDP Blinkbonny BEAR Scotland Management Alpha Resource AIM AGM Adopted IFRS The following definitionsapplythroughout thisAnnual Report, unless the context requires otherwise. GLOSSARY Greenhouse gas(emissions) Association Global Cement andConcrete Great Britain Principles Generally Accepted Accounting Financial Reporting Council Free CashFlow Financial Conduct Authority Euro Inter-bank Offered Rate Energy Savings OpportunityScheme Governance Environment, Sustainability & Earnings pershare Earnings before interest andtax segments: GB,Ireland andCement One oftheGroup’s three operating Construction Products Association Commercial Leaders Programme Construction Industry Training Board CEMEX UKOperations Limited Programme Commercial Development Capital Concrete Limited Robert Brett &SonsLimited Breedon Whitemountain Ltd Breedon Group plc Programme Breedon ManagementDevelopment Blinkbonny Quarry(Borders) Limited BEAR Scotland Limited Limited Alpha Resource Management the London Stock Exchange Alternative Investment Market of Annual General Meeting Standards asadopted by theEU International FinancialReporting

R&D QCA PSV PCA NISG NISO NI MWh MPA M&A LTIFR LSE LGV LIBOR Leverage Lagan KPI IT ISO Ireland Invested Capital IMF IFRS IDC IAS HS2 HMRC HGV Group Research and development Quoted Companies Alliance Polished Stone Value carrying wagon withairbrakes Privately-owned, drypowder Northern Ireland Safety Group National IrishSafety Organisation Northern Ireland Megawatt hour Mineral Products Association Mergers &acquisitions Lost Time Injury Frequency Rate London Stock Exchange Light goodsvehicle London Inter-bank Offered Rate of UnderlyingEBITDA Net debtexpressed asamultiple of Ireland which Breedon trades intheRepublic contracting services brand under construction materials and (Holdings) Limited andthe Refers to bothLaganGroup Key Performance Indicator Information Technology Standardisation International Organization for The IslandofIreland Net assets plus netdebt International MonetaryFund Standard International FinancialReporting International Data Corporation International Accounting Standards High Speed2 in theUK Her Majesty’s Revenue &Customs Heavy goodsvehicle companies Breedon anditssubsidiary BREEDONGROUP.COM

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ADDITIONAL INFORMATION ADDITIONAL INFORMATION GLOSSARY CONTINUED

RAP Reclaimed asphalt pavement the Revenue Office of the Revenue Commissioners in RoI

Roadway Roadway Civil Engineering & Surfacing Ltd

RoI Republic of Ireland

ROIC Post-tax Return on Invested Capital

RoSPA Royal Society for the Prevention of Accidents

SCQF Scottish Credit and Qualifications Framework

SECR Streamlined Energy and Carbon Reporting

SHE Safety, health and environment

SRF solid recovered fuel

Staffs Concrete Staffs Concrete Limited

STEM Science, Technology, Engineering and Mathematics

Sterling Pounds sterling

TCFD Task Force on Climate-related Financial Disclosures tCO2e Total CO2 emissions

TIFR Total Injury Frequency Rate

TUPE Transfer of Undertakings (Protection of Employment Regulations 2006)

UK United Kingdom (GB & NI)

Underlying Stated before acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items

Underlying EBITDA Earnings before interest, tax, depreciation and amortisation, non-underlying items and before our share of profit from associate and joint ventures

VFL Visible Felt Leadership

Whitemountain Whitemountain Quarries Limited. The construction materials and contracting services brand under which Breedon now trades in NI

WISHNI Waste Industry Safety and Health Forum Northern Ireland

WTO World Trade Organisation

140 BREEDON GROUP ANNUAL REPORT 2019 Designed and produced by Radley Yeldar www.ry.com This annual report is printed on Chorus Silk. The manufacturers of Chorus Silk hold ISO 9001 & ISO 14001 certifications and are also FSC & PEFC certified. This report is printed by Pureprint is a CarbonNeutral® company. Both manufacturing mill and the printer are registered to the Environmental Management System ISO 14001 and are Forest Stewardship Council® (FSC) chain-of-custody certified. If you have finished reading the report and no longer wish to retain it, please pass it on to other interested readers or dispose of it in your recycled paper waste. BREEDON GROUP Annual Report 2019

Breedon Group 28 Esplanade St Helier Jersey JE2 3QA Email: [email protected] www.breedongroup.com